EUR/USD continues to post losses on Tuesday, as the pair trades in the mid-1.35 range in the European session. The euro has slid close to one cent so far this week, as the ECB has cut interest rates, while the US is expected to move in the opposite direction. On the release front, French Industrial Production improved in May, posting a five-month high. In the US, today’s highlight is JOLTS Job Openings.
Here is a quick update on what’s moving the pair.
- EUR/USD was quiet in the Asian session, but has lost ground in the European session.
Current range: 1.35 to 1.3550.
- Below: 1.35, 1.3450 and 1.34
- Above: 1.3550, 1.3585, 1.3650, 1.3677, 1.37, 1.3740, 1.3785, 1.3830, 1.3865 and 1.3905.
- 1.35 is a weak support line. 1.3450 follows.
- 1.3550 has reverted to a resistance role as the euro loses ground. 1.3585 is next.
- 6:45 French Industrial Production. Estimate 0.3%, actual 0.3%.
- 8:00 Italian Industrial Production. Estimate 0.4%, actual 0.7%.
- 11:30 US NFIB Small Business Index. Estimate 96.1 points.
- 14:00 US JOLTS Job Openings. Estimate 4.04M.
- 14:00 US Wholesale Inventories. Estimate 0.6%.
*All times are GMT
- Draghi’s forward guidance backfires: It was supposed to be a blow after blow to the common currency: a negative deposit rate (from June 11th), targeted loans to banks (from September), a preparation for QE and no more SMP sterilization. However, the ECB tweaked its forward guidance and basically said it finished with rate cuts. With a lot of the dovish sting taken out of the equation, the euro recovered quite nicely and even rallied. Will it fall when negative rates come into effect? It is still to be seen. In the meantime, inflation could remain too low despite all the measures and only because of the high exchange rate. It’s safe to say that the markets were underwhelmed by the ECB’s actions, with one analyst saying the ECB had fired a lot of small bullets rather than resorting to a bazooka.
- Euro lower on yield differential: The markets continue to digest the monetary moves taken by the ECB last week. Although the interest rate cuts were not drastic, they nonetheless represented firm action by the ECB, and Mario Draghi has stated that more action could follow if deemed necessary. Meanwhile, with the Federal Reserve continuing to trim its QE program, there is a strong likelihood that US rates will move upwards in 2015. Thus we have a situation where European and US yields are likely to move in opposite directions, which have given a boost to the US dollar at the expense of the euro.
- Nonfarm Payrolls beats estimate: In the US, employment numbers were solid late last week. Unemployment Claims and Nonfarm Payrolls, both key indicators, met market expectations and helped the dollar hold its own against the euro. Unemployment Claims came in at 312 thousand, slightly above the estimate of 309 thousand. Nonfarm Employment Change met modest expectations on Friday, adding 217 thousand new jobs. The estimate stood at 214 thousand. The Unemployment Rate stayed pegged at 6.3%, beating the estimate of 6.4%. Solid employment numbers add to the likelihood that the Federal Reserve will continue to trim its QE program, which it plans to wind up by the end of 2014.