EUR/USD May 3 Markets Bracing for US PMI, Unemployment

After the euro’s plunge yesterday (May 2nd), Euro dollar  has edged slightly downward. The sharp drop, in which the euro lost close to one cent in  value,  was precipitated by weak employment data out of the Euro-zone. Today’s key releases include an ECB interest rate decision and press conference, as well as US employment and manufacturing PMI data.  Although a repeat of yesterday’s slide  is unlikely, any unexpected data could lead to further sharp moves by EUR/USD.

Here’s an update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session: EUR/USD had an uneventful session, dropping to a low of 1.3147, and consolidated at 1.3144. The pair has been edging downwards in the European session, trading at 1.3131.
• Current range: 1.3110 to 1.3165.

• Further levels in both directions: Below: 1.3050, 1.30, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2623.
• Above: 1.3210, 1.33, 1.34, 1.3437, 1.3486, 1.3550 and 1.3615.
• 1.3165 was breached by the pair on its sharp downswing yesterday, and is providing weak resistance.
• 1.3110 is the next level of support, and could be tested if the pair weakens further.

Euro/Dollar  trading in narrow range  – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00  Euro-zone PPI. Exp. +0.6%. Actual +0.5%.
• Tentative:  French 10-y Bond Auction.
• 11:45 ECB Minimum Bid Rate. Exp. +1.0%.
• 12:30 ECB Press Conference.
• 12:15  US Unemployment Claims. Exp. +381K.
• 12:30 US Prelim Nonfarm Productivity. Exp. -0.4%.
• 12:30 US Prelim Unit Labor Costs. Exp. +2.7%.
• 14:00 US Non-Manufacturing PMI. Exp. 55.5 points.
• 14:30 US Natural Gas Storage. Exp. +31B.
• 15:00 FOMC Member Williams Speaks.
• 17:00 FOMC Member  Lockhart Speaks.

For more events later in the week, see the Euro to dollar forecast

EUR/USD Sentiment

• US economy: strong Q1 but mixed data leaves room for concern: Analysts gave Q1 the thumbs up, but the world’s no. 1 economy is showing signs of slowing down. Another US recession seems unlikely at this point, but the US isn’t the locomotive it once was. The markets continue to have trouble pinning down the direction  of the US economy. GDP  in Q1 disappointed, but recent manaufacturing data was strong, as Manufacturing PMI and Manufacturing Prices both beat the market forecasts. Which way will today’s unemployment and PMI indices move? Traders shouldn’t count on the dollar making much headway against the euro if the markets continue to see a mixed bag of strong and weak data out of the US.
• Recession in Euro-zone Spreads: Spain is the latest member of a growing list of European economies now in recession,  joining the ranks of a host of  others, notably  the UK, Netherlands, Belgium, Ireland, Greece, Portugal and Italy. Weak spending in France and lower confidence in Germany is sure to make matters worse.The deepening economic slowdown will likely have a negative impact on the euro, as we saw yesterday when the euro took a tumble on poor employment data. Urgent action is needed, but the question is can the Euro-zone respond quickly and effectively to the crisis.
• Markets unimpressed as Fed maintains mixed message: Ben Bernanke didn’t rule out QE3, but as time passes by, this option seems quite unlikely, and even Bill Gross seems to back off his certainty that this move will come. A “hands off” policy of low interest rates for the foreseeable future is certainly not bullish for the dollar.
• Italy could face fiscal trouble: A fresh auction for 10 year Italian bonds yielded higher yields once again. Higher borrowing costs will only complicate attempts by the government to set its fiscal house in order. Although the situation is not as dire as that of Spain, further instability in the Euro-zone’s third largest economy could spell big trouble for the continent and the euro.
• Election Day  in Europe: Elections will be held in both France and Greece at the end of the week. In France, Socialist  leader  Hollande is not considered pro-market, and there are predictions that EUR/USD could eventually plummet to 1.20 if the Socialists form the next government. Greece, with its tottering economy,  could see a changing of the guard.  Just to add to this mix, the Dutch government recently resigned, and elections will be held shortly. All this uncertainty could spell trouble for the EU and the euro.
• Italy could face fiscal trouble: A fresh auction for 10 year Italian bonds yielded higher yields once again. Higher borrowing costs will only complicate attempts by the government to set its fiscal house in order. Although the situation is not as dire as that of Spain, further instability in the Euro-zone’s third largest economy could spell big trouble for the continent and the euro.
• China to the rescue?: There are signs of growth in the Chinese economy, notably   in   the recent PMI numbers. But will this be enough to energize the sluggish world economy and  rescue an ailing  Europe? China’s economic indictors are often volatile and at times unreliable, and the structure of the economy often invites  speculation, such as in the current real estate market.  However, the bottom line is that what happens in the global economy in general, and in Europe in particular,  is in no small part dependent on what’s happening with the Asian giant.