EUR/USD Feb 21 – Tumbles After Fed Minutes, Weak PMIs

EUR/USD  has  fallen  sharply, shedding  close to a cent in Thursday trading.  The  euro  took a hit after  minutes from the  Federal Reserve’s  most recent meeting showed that  members discussed winding down  the current round of QE. There was more bad news for the euro,  as  French, German and Eurozone PMIs  all fell below the  estimate. Later in the day, the results of the Spanish 10-year Bond Auction will be released. In the US, it’s a very busy Thursday, with four major releases – Core CPI, Unemployment Claims, Existing Home Sales and the Philly Fed Manufacturing Index.

EUR/USD Technical

• Asian session: Euro/dollar was own, touching a low of 1.3236. The pair consolidated  at 1.3256. In the European session, Euro/dollar continues to lose ground, and is testing the 1.32 line.
• Current range: 1.34 to 1.3486.

Further levels in both directions:    

• Below: 1.3170, 1.3130, 1.3110, 1.3030, 1.30 and 1.2960.
• Above: 1.3255, 1.3290, 1.3360, 1.34, 1.3486, 1.3588, 1.3690 and 1.3740.
• The pair is receiving  support at 1.3170.  The next support level is 1.3130.
• On the upside, 1.3255 is the next line of resistance.

Euro/dollar  falls after Fed minutes, weak PMI data – click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 French Flash Manufacturing PMI. Exp. 43.9 points. Actual 43.6 points.
• 8:00 French Flash  Services PMI. Exp. 44.5 points. Actual 42.7 points.
• 8:30  German Flash Manufacturing PMI. Exp.  50.4 points. Actual  50.1 points.
• 8:30  German Flash Services PMI. Exp. 55.5 points. Actual  54.1 points.
• 9:00  Eurozone Flash Manufacturing PMI. Exp.  48.4 points. Actual  47.8 points.
• 9:00  Eurozone Flash  Services PMI. Exp.  49.2 points. Actual  47.3 points.
• Tentative:  Spanish 10-year Bond Auction.
• 13:30 US Core CPI. Exp. 0.2%.
• 13:30 US Unemployment Claims. Exp. 353K.
• 13:30 US CPI. Exp. 0.1%.
• 14:00 US Flash Manufacturing PMI. Exp. 55.6 points.
• 15:00 US Existing Home Sales. Exp. 4.89M.
• 15:00 US Philly Fed Manufacturing Index. Exp. 1.1 points.
• 15:00 US Mortgage Delinquencies.
• 15:00 US CB Leading Index. Exp. 0.2%.
• 15:30 US Natural Gas Storage. Exp. -119B.
• 16:00 US Crude Oil Inventories. Exp. 1.9M.
• 17:30 US FOMC James Bullard Speaks.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

• Federal Reserve mulls ending QE4: The Federal Reserve released the minutes of its most recent FOMC meeting on Wednesday. The minutes indicated that policymakers had discussed slowing or event stopping the current round of QE before the US employment situation brightens, due to concern about the negative effect that QE  could have  on  the financial markets.  Previously, the Fed had stated that the current round of QE would remain in effect until unemployment dropped to 6.5%. The Fed  has been  purchasing a record amount of assets,  trying to bolster the US economy, which contracted by 0.1% in Q4 of 2012. The  Federal Reserve  has kept its benchmark interest rate close to zero and expanded its balance  sheet to over $3 trillion, but the economy has been slow to respond. The currency markets  reacted quickly to the news, as the euro fell sharply against the US dollar.
• Disappointing PMIs across Eurozone:  Thursday’s PMI data out of Europe  was dismal, as Services and Manufacturing PMIs from France, Germany and the Eurozone failed to reach their estimates.  With the  exception of the German data, the indicators were below the 50  point threshold. This indicates contraction in the services and manufacturing sectors, and raises concerns about the health of the Eurozone economy. The  weak data has hurt  the euro, which  has  dipped  below the 1.32 line.      
• Draghi discusses euro: Earlier this week, ECB chief Mario Draghi testified before the European Parliament Committee on Economic and Monetary Affairs. Draghi said that the Eurozone is stable, but acknowledged that the economy was weak after three straight quarters of negative growth. He reiterated that he expects the Eurozone to show improvement later in 2013. Draghi also touched on the hot topic of currency exchange rates. He repeated his concern that the high value of the euro could impact on the ECB’s inflation outlook, but sought to reassure his listeners that the euro’s exchange rate was not a policy target.
• G-20 issues statement on exchange rates: The volatility we are witnessing in currency exchange rates have become a hot topic, and the  G-20 addressed this issue at  its recent meeting, although  it  was   careful  not to ruffle any feathers. The leaders pledged not to “target our exchange rates for competitive purposes”, and to move more rapidly to market-determined exchange rate systems. The G-20 statement did not make reference to Japan, which has come under fire for monetary policies which have led to free-fall in the value of the Japanese yen. The G-20 also stated that more effort was needed to continue to strengthen the Eurozone, by building a stronger economic and monetary union.