EUR/USD May 22 – Little Movement As Euro Manufacturing

EUR/USD continues to have a quiet week, as the pair trades in the high-1.36 range in the European session. The euro shrugged off disappointing numbers out of the Eurozone on Thursday, as German, French and Eurozone Manufacturing PMIs all softened in April and  fell short of expectations. Services PMIs fared better, as these indicators improved in Germany and the Eurozone, but the French numbers weakened. In the US, there are two key releases on the schedule – Unemployment Claims and  Existing Home Sales.

• EUR/USD edged lower in the Asian session, but has recovered in European trading, as the pair trades around the 1.3680 line.

Current range: 1.37 to 1.3740.

Further levels in both directions:

• Below: 1.3650, 1.3560, 1.3515 and 1.3450
• Above: 1.37, 1.3740, 1.3785, 1.3830, 1.3865, 1.3905, 1.3964, 1.40, 1.4055 and 1.4105
• 1.3650  is providing  weak support. 13560 is stronger.  
• The round number of 1.3700 is  a weak resistance line.

EUR/USD Fundamentals

• 7:00 French Flash Manufacturing PMI. Estimate 51.1, actual 49.3 points.
• 7:00 French Flash  Services PMI. Estimate 50.3, actual 49.2 points.
• 7:30  German Flash Manufacturing PMI. Estimate 54.0, actual 52.9 points.
• 7:30  German Flash  Services PMI. Estimate 54.8, actual 56.4 points.
• 8:00  Eurozone Flash Manufacturing PMI. Estimate 53.2, actual 52.5 points.
• 8:00  Eurozone Flash  Services PMI. Estimate 53.0, Actual 53.5 points.
• 8:39 Spanish 10-year Bond Auction. Actual 2.97%.
• Day 1 –  European Parliamentary Elections.
• 12:30 US Unemployment Claims. Estimate 312K.
• 13:45 US Flash Manufacturing PMI. Estimate 55.6 points.
• 14:00 US Existing Home Sales. Estimate 4.71M.
• 14:00 US CB Leading Index. Estimate 0.4%.
• 14:30 US Natural Gas Storage. Estimate 104B.

*All times are GMT

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

EUR/USD Sentiment

• Cautious tone from Fed: There were no surprises  from the  Federal Reserve minutes on Wednesday, and there was no dramatic response from the markets. In the minutes, policymakers discussed an exit strategy from its QE stimulus program, which is set to terminate at the end of 2014. This will likely mean an increase in interest rates once QE is over and done with, but the minutes didn’t provide a timetable as to when rates might go up and by how much. Low inflation levels means there is less pressure on the Fed to raise rates next year, but the economic  conditions could change in the meantime. The Federal Reserve remains comfortable with its accommodative stance, and will want to see stronger growth and employment numbers before making changes to monetary policy, such as raising rates.
• Euro PMIs point down: Eurozone, German  and  French  Manufacturing PMIs  weakened last  month, pointing to trouble in the manufacturing sector of the major Eurozone members. The French indicator dipped to 49.3 points, pointing  to contraction. German and Eurozone data remained above the 50-point level, which points to  expansion, but both fell short  of expectations.  Weak PMIs is one more reason why the ECB could make a monetary move in June.
• Will the ECB press the trigger? After climbing  close to the key 1.40 level, the euro  put on the brakes  after ECB president Mario Draghi stated he  was prepared to take action in June to tackle low growth and weak inflation. The markets have heard tough talk  (and no action) from Draghi before, but there is a feeling  in the air that the June ECB meeting could be  different.  There is speculation that the ECB could cut  the benchmark rate, which  is currently at just 0.25%,  or lower deposit rates, which are at 0%, into negative territory.  As we get closer to the June meeting,  traders  can expect some volatility from EUR/USD.
• Weak inflation persists in  Eurozone: Inflation  indicators continue to look weak in the Eurozone, and this was reinforced on Tuesday as German PPI came in at -0.1%, short of the estimate of 0.0%. The ECB has tried to downplay concerns over lack of inflation, but when Mario Drahgi acknowledged that the central bank could take action in June, the euro responded with sharp losses. ECB head Mario Draghi has said that the ECB could take monetary action at is June meeting depending on inflation and growth levels, so further weak inflation numbers could force Draghi to take action in June.

More:  Is the Eurozone Crisis Really Over?