EUR/USD June 7 – Sharp Gains as ECB Stands Pat on Rates

EUR/USD shot higher on Thursday, gaining about 150 points on Thursday.  The ECB  opted to maintain the current  benchmark interest rate at 0.50% and deposit rates at 0%. However, the pair got a boost from optimistic comments from ECB head Mario Draghi about Eurozone growth in 2014. In economic news, German Factory Orders looked weak, hitting a seven-month low. In the US, Unemployment Claims bounced back and were very close to the estimate. On Friday, German Trade Balance easily  beat the estimate. German Industrial Production will be released later. The markets will get another look at US employment data, with the release of two key events – Unemployment Rate and  Non-Farm Payrolls.  

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

EUR/USD Technical

• Asian session: Euro/dollar  settled down after sharp gains earlier.  The pair touched a  high of 1.3269 and  consolidated at 1.3254. In the European session, the pair is unchanged.

Current range: 1.3255 – 1.3290.

Further levels in both directions:  

• Below: 1.3255, 1.32, 1.3160, 1.31, 1.3050, 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750, 1.27, 1.2624 and 1.2587.
• Above: 1.3290, 1.3350, and 1.34.
• On the downside, 1.3255 is under pressure. 1.32 is the  next support level.
• 1.3290 is providing weak resistance. 1.3350 is stronger.

Euro  jumps as ECB maintains interest rates  – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00  German Trade Balance. Exp. 16.5B. Actual 17.7B.
• 6:45  French Government Budget Balance.  Actual -66B.
• 6:45  French Trade Balance.  Exp. -4.4B. Actual -4.5B.
• 10:00 German Industrial Production. Exp. 0.0%
• 12:30 US Non-Farm Employment Change. Exp. 167K. See how to trade the Non-Farm Payrolls with EUR/USD.
• 12:30 US Unemployment Rate. Exp. 7.5%.
• 12:30 US Average Hourly Earnings. Exp. 0.2%.
• 19:00 US Consumer Credit. Exp. 13.4B.

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

EUR/USD Sentiment

• Euro flies after ECB Announcement: We’ve become accustomed to volatility from  the euro after ECB  policy meetings, and  Thursday  was no exception. The  euro  put in a good day’s work on Thursday, jumping around 150 points, and the currency even  moved above the 1.33 level before retracting. The ECB  held a steady course, maintaining the benchmark rate at 0.50% and  deposit rates at 0%.  ECB President Mario Draghi  downgraded the forecast for Eurozone growth in 2013 from 0.6% to 0.5%.  However, for 2014,  Draghi hiked    the forecast from 1.0% to 1.1%. The markets seemed to focus on the positive  aspect of Draghi’s comments, and the euro surged against  the US dollar, which was broadly weaker against the  major currencies.
• Is Germany headed up, down, or both? Lost in all of Thursday’s excitement was a very weak German manufacturing release. German Factory Orders slumped, falling from 2.2% to -2.6%,  its worst showing  since November 2012. On Friday, German Trade Balance remained steady at EUR 17.7 billion, well above the estimate of EUR 16.5 billion. The week wraps up with another important manufacturing release,   German Industrial Production. We have been seeing mixed releases from the Eurozone’s largest economy, and the euro will have a tough time staying in flight if Germany continues to alternate between positive and weak releases.
• Spain starts June in style: It isn’t often that Spain posts three strong readings in the same week, but that’s  exactly what we’ve seen  from the Eurozone’s  fourth largest economy.  On Wednesday, Services PMI jumped  from 44.4 to 47.3 points, its best performance since July 2011, which was the last time that the index was above the 50-point level. Earlier this week, Manufacturing PMI jumped from 44.7 points to 48.1 points, the index’s highest reading since June 2011. This was followed by Unemployment Change, which pointed to 98 thousand less claims, a record for the month of May. Prime Minister Mariano Rajoy, whose government remains deeply unpopular due to a strict austerity program, has asked Spaniards to show more patience.  Rajoy could get some much-needed breathing room from these improving numbers.  The Spanish PM  has said that the worst of the crisis is over, and he would like to cut taxes if the economy improves.
• Strong Spanish employment data: Spain posted some exceptional employment numbers earlier this week, as Unemployment Change dropped by 98.3 thousand, the best performance ever for the month of May. The estimate stood at -50.2 thousand.  However,  it should be noted  May is often a good month for employment numbers, and the Unemployment Rate hit a record high of 27.1% in Q1, so the employment picture remains grim, despite the solid Unemployment Change release.
• US employment numbers mixed:  On Wednesday, ADP Non-Farm Payrolls slipped badly, in what has  become a disturbing trend. The key employment indicator missed the estimate for the third straight month. The indicator posted a reading of 135 thousand, well off the forecast of 171 thousand. Unemployment Claims  looked better, coming in  at  346 thousand. This was very close to the forecast of 345 thousand. The markets will get another look at the US employment picture on Friday, with the release of Unemployment Rate and Non-Farm Payrolls. If the results are not in line with market expectations, we could see more volatility from EUR/USD.