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EUR/USD is very quiet in Thursday trading, as the markets eagerly await the ECB rate announcement. The pair was trading in the 1.3170 range  in the European session. With the markets expecting a cut to a record low level of 0.50%, we could see some volatility from the  euro following the rate decision. In the US, the  Federal Reserve  statement was a non-event, as the Fed had little to say and took no new action.  In economic news, Spanish Manufacturing PMI came in as expected, while Italian Manufacturing PMI beat the forecast. Today’s highlight out of the US are Trade Balance and the weekly Unemployment Claims.

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 uneventful, touching a  low of 1.3151 and consolidated at 1.3157. The pair  is unchanged  in the European session.
  • Current range: 1.3050 to 1.3100.

Further levels in both directions:   EUR_USD Daily May2

 

  • Below: 1.3140, 1.31, 1.3050, 1.3000, 1.2960, 1.2880, 1.2805, 1.2750 and 1.27.
  • Above: 1.3170, 1.3255, 1.3290, 1.3350 and 1.34.
  • The pair is testing 1.3170,  a key level. 1.3255 is stronger.
  • 1.3140 is a weak support level.

Euro  quiet ahead  of ECB  meeting – click on the graph to enlarge.

 

EUR/USD Fundamentals

  • 7:15 Spanish Manufacturing PMI. Exp. 44.6 points. Actual 44.7 points.
  • 7:45 Italian Manufacturing PMI. Exp. 44.9 points. Actual 45.5 points.
  • 8:00 Eurozone Final Manufacturing PMI. Exp. 46.5 points. Actual 46.7 points.
  • 9:00 French 10-year Bond Auction. Actual. 1.81%.
  • 11:30 US Challenger Job Cuts.
  • 11:45 ECB Minimum Bid Rate. Exp. 0.50%.
  • 12:30 ECB Press Conference.
  • 12:30 US Trade Balance. Exp. -42.1B.
  • 12:30 US Unemployment Claims. Exp. 346K.
  • 12:30 US Preliminary Non-Farm Productivity. Exp. 1.8%.
  • 12:30 US Preliminary Unit Labor Costs. Exp. 0.8%.
  • 14:30 US Natural Gas Storage. Exp. 27B.

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

EUR/USD Sentiment

  • Fed stays on the sidelines: The FOMC policy statement was a non-event on Wednesday, as the Fed basically noted that it wasn’t willing to take further steps, despite weakness in the economy. This was a relatively hawkish statement from the Fed, which tends to be more dovish. Currently, the Fed is purchasing $85 billion in assets under the QE program, and did not indicate any changes were coming. The Fed did take a shot at the government’s economic policy, saying that current fiscal policy was restraining economic growth.
  • All eyes on ECB: The ECB will set its interest rate levels later on Thursday. With most analysts predicting a cut in rates from 0.75% to 0.50%, we could see some volatility from EUR/USD. The Eurozone seems to be lurching from one crisis to another, as we have seen with the Cyprus bailout mess and the political impasse in Italy. Overall, we continue to see weak economic activity in the Eurozone,   and  the ECB may feel it’s time to pull the trigger and lower rates. The rates have not moved  since last July,  so traders can expect a strong reaction from the euro if the ECB makes the move.
  • US Employment Data Disappoints: The US continues to struggle with weak numbers as underscored by ADP Non-Farm Payrolls. The key indicator dropped to 119 thousand, way off the forecast of 154 thousand. We’ll get a better picture of the US employment picture as the US releases Unemployment Claims on Thursday, followed by official US Non-Farm Payrolls on Friday.
  • Italian numbers improve: A loud sigh of relief could be heard in the markets, as Italy finally announced  that a government had  been formed.  Although the new government will have its hands full with  economic challenges, there was some good news this week from economic indicators.  Italian 10-year bonds were down, dropping below 4%. This  is an important sign of renewed  investor confidence in the Italian economy. There was further positive news as the Italian Monthly Unemployment Rate nudged lower, from 11.6% to 11.5%. This beat the estimate of 11.7%. On Thursday, Italian Manufacturing PMI came in at 45.5 points, above the forecast of 44.9 points. If the markets see more good news out of the Eurozone’s third largest economy, the euro could push higher.
  • German Data Mixed: German data looked sluggish last week, and Tuesday’s numbers were mixed. Retail Sales declined 0.3%, below the estimate of 0.2%. Unemployment Change came in at 4 thousand new claims, worse than the estimate of two thousand. On the bright side, Consumer Climate rose to 6.2 points, beating the estimate of 5.9 points. In order for the Eurozone to stage a recovery, Germany will have to lead the way with improved numbers.