EUR/USD July 1 – Euro Slightly Firmer as Eurozone PMIs

EUR/USD  has edged higher as we begin the new trading week. The pair is trading in the mid-1.30 range in Monday’s  European session.  The  day started off  on a positive note, as Eurozone PMIs improved. Meanwhile, Italian Monthly Employment posted another record high. Later today, the Eurozone releases CPI Flash Estimate and the Unemployment Rate.  In the US,  today’s highlight is ISM Manufacturing PMI. The markets are hoping that the index will climb above the 50-point level, which indicates expansion.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• Asian session: Euro/dollar edged higher, touching a  high of 1.3034  and consolidating at 1.3030. The pair  has inched higher in  the  European session.

Current range: 1.3000 – 1.3050.

Further levels in both directions:      

• Below: 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750  and  1.27.
• Above: 1.3050, 1.31, 1.3160, 1.32, 1.3255, 1.3350, 1.34, 1.3434 and  1.3480.
• EUR/USD is testing resistance at 1.3050. 1.3100 is next.
• On the downside, the critical line of 1.3000 is providing support. This is followed by 1.2940.

Euro  trading  in  mid-1.30 range after  positive PMI numbers  – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:15  Spanish Manufacturing PMI. Exp. 48.9 points. Actual 50.0 points.
• 7:45  Italian Manufacturing PMI. Exp. 47.8 points. Actual  49.1 points.
• 8:00  Eurozone Final  Manufacturing PMI. Exp. 48.7 points. Actual  48.8 points.
• 8:00 Italian Monthly Unemployment Rate. Exp. 12.1%. Actual 12.2%.
• 9:00 Eurozone CPI Flash Estimate. Exp. 1.6%. See how to trade this event with EUR/USD.
• 9:00 Eurozone Unemployment Rate. Exp. 12.3%.
• 13:00 US  Final Manufacturing PMI.  Exp.  52.4 points.
• 14:00 US  ISM Manufacturing PMI.  Exp.  50.6 points.
• 14:00 US  ISM Manufacturing Prices.  Exp.  50.5 points.
• 14:00 US  Construction Spending.  Exp.  0.6%.

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

EUR/USD Sentiment

• Eurozone Manufacturing PMIs point higher: There was good news to start the week as Eurozone Manufacturing PMIs moved higher. Spanish Manufacturing PMI has been moving upwards recently, and  reached the 50.0 level for the first time since May 2011. A reading above 50 indicates expansion. Italian and Eurozone Manufacturing PMIs also beat their estimates, but remain under the 50 level. If the week continues with more positive releases out of the Eurozone, we could see the euro show some improvement.
• US Posts Solid Numbers: We have become accustomed to seeing mixed numbers out of the US, but  last week’s releases were  sharp, for the most part. Manufacturing, consumer confidence and housing numbers all beat their estimates. Unemployment Claims bounced back after a poor release the week before, and almost matched the estimate. Although GDP fell short of  the  estimate, the dollar did not lose ground. These solid  numbers are particularly encouraging as they come from a wide range of economic sectors, and could signify that the  US recovery is deepening.
• Global growth downgraded: Global economic growth has not been particularly strong, and  has now  been  downgraded by the HSBC. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging   countries such as India and Brazil. The report revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4%. to 7.4% for next year. Weaker global growth  will  likely  have a strong impact on countries which heavily depend on exports, such as Japan, Canada and Australia.
• Fed Backtracking on QE?: After Federal Reserve Chair Bernard Bernanke announced that the Fed was planning to scale down QE, the US dollar surged. However, global stock markets, including those in the US, fell sharply on the news, and the Fed assigned two Federal Reserve Presidents to manage damage control. Dallas’ Richard Fisher declared that “tapering”  should not be confused with “tightening” and said that the Fed was not exiting from its accommodative policy action just yet. Minneapolis’ Naraya Kocherlakota reiterated that the Fed was continuing with an expansionary monetary policy event if QE was terminated, and said that the Fed had not turned more hawkish. One could be forgiven for  dismissing these statements as little more than linguistic acrobatics, and it’s questionable if the markets will be reassured by these statements, which were clearly aimed  at calming nervous investors.
• German data shows improvement:  Last week did not start off well for German releases, as German Ifo Business Climate, a key indicator, came in  slightly below the estimate.  However, there was better news as the week progressed. German Consumer Climate  hit  a six-year high, while German Unemployment Claims  came in well below the estimate. On  Friday, German Retail Sales jumped 0.8%, surprising the  markets which had anticipated a 0.2% decline. Germany is the largest economy in the Eurozone, and the “locomotive of Europe” will have to supply additional positive releases if the Eurozone is to get back on its economic feet.