EUR/USD March 21 – Lower after Weak Euro PMIs

EUR/USD  has lost ground and is showing volatility in Thursday’s European session, following the release of weak PMI numbers out of the Eurozone, Germany and France.  The euro is also under pressure as Cyprus rejected a bailout package which included a contentious bank tax. In the US, the Federal Reserve said it would continue its current round of QE. On Thursday, Spain holds an auction for 10-year bonds. In the US, it will be a busy day as there are three key releases – Unemployment Claims, Existing Home Sales and the Philly Fed Manufacturing Index.

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

EUR/USD Technical

• Asian session: Euro/dollar was steady. The pair touched a high of 1.2955 and consolidated at 1.2937. In the European session, the pair has edged lower, and was testing the 1.29 line.
• Current range: 1.2880 to 1.2960.

Further levels in both directions:    

• Below: 1.2880, 1.2805, 1.2746, 1.27, 1.2660 and 1.2587.
• Above: 1.2960, 1.3000, 1.3100, 1.3130, 1.3170, 1.3255, 1.3290, 1.3350, 1.34, 1.3486 and 1.3588.
• 1.2960 is the next line of resistance. 1.3000 stronger.
• 1.2880 is under pressure as the pair weakens. 1.2805 is the next support level.

Euro/dollar falls after weak PMIs from Germany and France- click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 French Flash Manufacturing PMI. Exp. 44.4 points. Actual 43.9 points
• 8:00 French Flash  Services PMI. Exp. 44.1 points. Actual 41.9 points
• 8:30  German Flash Manufacturing PMI. Exp.  50.8 points. Actual 48.9 points
• 8:30 German Flash  Services PMI. Exp. 54.9 points. Actual  51.6 points
• 9:00  Eurozone Flash Manufacturing PMI. Exp.  48.2 points. Actual  46.6 points
• 9:00 Eurozone Flash  Services PMI. Exp. 48.2 points. Actual  46.5 points
• Tentative:  Spanish 10-year Bond Auction
• 12:30 US Unemployment Claims. Exp. 343K
• 13:00 US  Flash Manufacturing PMI.  Exp. 55.1 points
• 13:00 US  HPI. Exp. 0.7%
• 14:00 US Existing Home Sales. Exp. 5.02M
• 14:00 US Philly Fed Manufacturing Index. Exp. -1.6 points
• 14:00 US CB Leading Index. Exp. 0.3%
• 14:30 US Natural Gas Storage. Exp. -70B

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

EUR/USD Sentiment

• Euro PMIs disappoint: Thursday’s PMI data out of the Eurozone was a  major disappointment. In France, Manufacturing PMI came in at 43.9 points and Services PMI at 41.9, both of which were below expectations. It was the same story with Eurozone PMIs, as the Manufacturing PMI came in at 46.6 points and Services PMI at 46.5. German Manufacturing PMI, a key indicator, dropped below the 50-point level to 48.9 points, indicating contraction. German Services PMI managed to stay above the 50-point threshold at 51.6 points, but this was well below the estimate of 54.9 points. These weak numbers point to continued stagnation in the Eurozone, but what is especially worrying is the German data, which points to trouble in the Eurozone’s largest economy. The euro took a hit after the releases and dipped below the 1.29 line, but has partially recovered from these losses and is back above 1.29.
• Cypriot Parliament votes no to bailout: The small island of Cyprus continues to be in the financial headlines.  What was supposed to be a straightforward 10 billion euro  rescue package  has turned into a full-blown financial crisis. The reason was  a controversial provision in the agreement, which  sent the currency markets spinning early in the week. Under the terms of the bailout package, deposit holders in Cypriot banks would be levied with a one-time tax, between 6.7% and 9.9%, depending on the size of the deposit. This tax  was intended to raise 5.8 billion euros, which would be a condition  for Cyprus receiving the bailout funds. Cypriots were understandably in an uproar,  and on  Tuesday the Cypriot parliament voted overwhelmingly against the bailout deal, despite the government’s pleas that rejecting the agreement could lead to a bank collapse. German Chancellor Angela Merkel said she was ready to work with Cyprus to find a solution, and officials from the EU and IMF, who are the creditors behind the bailout, are in Cyprus for talks with the Cypriot government to discuss ways of making the bailout deal more palatable.
• Federal Reserve stands pat: Bernard Bernanke had no tricks up his sleeve as the US Federal Reserve maintained interest rates and the current round of asset purchases. The benchmark interest rate remains at 0%-0.25%, and the Fed will continue to purchase $85 billion in assets each month. There had been speculation that the Fed might modify its monetary policy as the economy as shown signs of improvement and unemployment has dipped lower. However, Bernanke stated that the labor market was still weak and also noted concern about recent tax increases and federal spending cuts.
• US numbers a mix (again): US data continues to be a mixed bag of good and bad. Tuesday’s housing numbers looked good, as Building Permits hit a multi-year high, and Housing Starts matched expectations. Last week was yet another example of the mix we are seeing in US data, making it difficult to assess how strong the recovery is. Employment and retail sales data looked sharp, but Friday was a different story. UoM Consumer Sentiment fell well below expectations. and the Empire State Manufacturing Index also missed the estimate. The markets will  be hoping for positive news on Thursday, as the US releases key employment, housing and manufacturing data.