EUR/USD May 6 – Settles Down After ECB Excitement

After some  sharp movement last week,  EUR/USD  has  settled down, and was trading in the low-1.31 range.  With the  ECB’s interest rate cut behind us, the markets  have turned their attention to Monday’s Eurozone releases. In Spain, Unemployment Change looked very sharp, while Services PMI missed the estimate.  Meanwhile, Italian Services PMI and Final Services PMI both beat expectations. ECB Mario Draghi will speak in Rome, so we could see some activity from the pair. It’s a quiet start to the week in the US, with no releases on Monday.

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

EUR/USD Technical

• Asian session: Euro/dollar showed some movement, touching a high of 1.3140, before consolidating at 1.3107. The pair  is unchanged in the European session.
• Current range: 1.3100 to 1.3400.

Further levels in both directions:  

• Below: 1.31, 1.3030, 1.3000, 1.2960, 1.2880, 1.2805, 1.2750 and 1.27.
• Above: 1.3160, 1.32, 1.3255, 1.3290, 1.3350 and 1.34.
• On the downside, the pair is testing 1.31.
• 1.3160 is providing resistance.

Euro  starts off week  quietly  – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00 Spanish Unemployment Change. Exp. 17.1K. Actual -46.1K.
• 7:15 Spanish Services PMI. Exp. 45.8K. Actual 44.4K.
• 7:45 Italian Services PMI. Exp. 46.3 points. Actual 47.0 points.
• 8:00 Eurozone Final Services PMI. Exp. 46.6 points. Actual 47.0 points.
• 8:30 Eurozone  Sentix Investor Confidence. Exp.  -14.6 points. Actual  -15.6 points.
• 9:00 Eurozone Retail Sales. Exp. -0.1%. Actual -0.1%.
• 13:00 ECB President Mario Draghi Speaks.

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

EUR/USD Sentiment

• Euro bounces as ECB lowers rates: For the first time in almost a year, the ECB lowered interest rates, to a record low of 0.50%. The rates had been pegged at 0.75% since July 2012. Most analysts had expected the cut, as the Eurozone economy remains sluggish, and many of the major European economies have been  bitten by recession. However, the markets reacted negatively to comments by ECB head Mario Draghi that the ECB would consider a negative deposit rate for banks. The deposit rate, which is what the ECB pays Eurozone banks for overnight deposits, currently stands at 0%. The markets will be watching carefully to see if the sluggish Eurozone economy shows some life after the rate cut.
• US  Employment Numbers  Improve: The US  has been struggling with weak releases since late March,  so solid employment numbers last week were welcome news. Unemployment Claims came in below expectations for the second straight week. The key indicator  dropped from 339 thousand to 324 thousand, blowing past the estimate of 346 thousand. On Friday, Non-Farm Payrolls shot higher, hitting 165 thousand. This easily beat   the estimate of 146 thousand. As well, the Unemployment Rate fell from 7.6% to 7.5%. Improving employment numbers are critical for economic growth, and the markets are hoping that the good news continues.
• Is Spain on the road to recovery? Spanish releases started the week started in fine fashion, as Unemployment Change dropped by 46.1 thousand. This surprised the markets, which had expected a rise of 17.1 thousand.  Prime Minister Mariano Rajoy has stated that he expects the unemployment rate, currently at  a record 27%, to start dropping in 2014 as the economy improves.    Rajoy has implemented tough austerity measures, and further solid numbers out of Spain would be a strong indication that the austerity program is bearing fruit.
• Italian numbers point upward:  A severe political crisis was finally solved last week, as  Italy formed a government.  formed.  Since this dramatic development, we’ve seen some good indicators from the Eurozone’s third largest economy.  Italian 10-year bonds dropped below 4%, an important sign of renewed  investor confidence in the Italian economy. Then, the Italian Monthly Unemployment Rate nudged lower, from 11.6% to 11.5%. This beat the estimate of 11.7%. Manufacturing and Services PMIs have followed suit, and also beat their forecasts. If the new coalition proves to be stable and  makes good on its promises to implement economic reforms, we could see more solid  data out of Italy, which would be excellent news for the Eurozone and the euro.