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The euro has started the week with some modest gains, as EUR/USD    punched past the 1.30 level  in Monday’s Asian session.  In economic news, Italian, Spanish and Eurozone Manufacturing PMIs all improved and beat their estimates.  In the US, today’s highlight is ISM Manufacturing PMI. The markets are anticipating another reading slightly above the 50-point level, which would indicate modest 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 pushed above the 1.30 line, touching a high of 1.3032. The pair consolidated at 1.3040. The pair  is unchanged  in the European session.

Current range: 1.3000 – 1.3050.

Further levels in both directions:   EUR USD Daily Forecast June 3

 

  • Below: 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750, 1.27, 1.2624 and 1.2587.
  • Above: 1.3050, 1.31, 1.3160, 1.32, 1.3255, and 1.3290, 1.3350, and 1.34.
  • The pair is again testing 1.3050 on the upside.  1.3100 is next.
  • 1.30 is providing weak support.  This is followed by 1.2940.

Euro  edges higher after solid Eurozone PMIs  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 1:50 US FOMC Member Janet Yellen Speaks.
  • 7:15  Spanish Manufacturing PMI. Exp. 45.5 points. Actual 48.1 points.
  •  7:45  Italian Manufacturing PMI. Exp. 46.2 points. Actual 47.3 points.
  •  8:00  Eurozone Final Manufacturing PMI. Exp. 47.8 points. Actual 48.3 points.
  •  13:00 US  Final Manufacturing PMI. Exp. 52.0 points.
  • 14:00 US ISM Manufacturing PMI. Exp. 50.6 points.
  • 14:00 US Construction Spending. Exp. 1.1%.
  • 14:00 US ISM Manufacturing Prices. Exp. 49.6 points.
  • All Day: US Total Vehicle Sales. Exp. 15.2 M.

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

EUR/USD Sentiment

  • Eurozone Manufacturing PMIs Climb Higher: The new trading week started on the right foot, as Eurozone Manufacturing PMIs all moved higher. Italy’s Manufacturing PMI hit a four-month high, climbing to 47.3 points. Eurozone Final Manufacturing PMI hit its highest level in over a year, reaching 48.3 points. Spanish Manufacturing PMI rose sharply, from 44.7 points to 48.1 points. However, the positive readings are tempered by the fact that  all three  indicators remain stuck  below the 50-point level, indicating continuing contraction in the  Italian, Spanish and Eurozone manufacturing sectors.  The indicators are certainly pointing in the right direction, but if the manufacturing industry is to get back on its feet in Europe, we will need to see some readings above the 50  level.
  • Dollar drops as  key US numbers disappoint: Any hopes for a strong week out of the US were dashed, as Thursday’s key indicators were unimpressive. Preliminary GDP improved to 2.4%, but missed the estimate of 2.5% Unemployment Claims shot up to 350 thousand, well above the estimate of 342 thousand.  Finally, Pending Home Sales gained just 0.3%, way off the forecast of a 1.3% gain. These numbers point to weakness in the US economy, which seems to take a step or two backwards for every step forwards. The markets will  be hoping for a rebound this week.
  • Will Fed Wind Up QE?:  Although the Fed hasn’t made any changes to the current round of QE, Fed policymakers, including Fed  Chair Bernanke,  continue to hint that QE  could be scaled back  in the next few months. With the US continuing to alternate between good and bad economic releases, the Fed may continue to hold off on any changes to QE before it is convinced that the US economy is improving. The currency markets have reacted sharply to talk about terminating QE, and much of the volatility we are seeing  from EUR/USD can be attributed to market uncertainty about what action the Fed will take. We can expect the currency markets to continue to be very sensitive to further talk of tapering QE.
  • Markets Eye ECB  Rate Announcement:  The markets  are already  speculating on what  action, if any the  ECB will take when it holds a  policy meeting later this week. EUR/USD has gone  on wild  rides after recent meetings, even though interest rates were left untouched, and  this could  well be the case this time  as well. There has been more talk of negative interest rates, and Mario Draghi and other policy makers have hinted that they are open to the idea. The ECB’s deposit rate currently stands at zero, and if the ECB decides to go lower, it would be the first central bank to introduce negative interest rates. Negative rates would be bad for the euro, as investors would likely look outside the Eurozone to get more attractive rates for their funds, rather than paying the ECB to hold their deposits. If Draghi repeats his openness to the concept, the  dollar could get a lift against the euro.