EUR/USD May 7 – Under Pressure as Draghi Mulls

After some  sharp movement last week,  EUR/USD  has quieted down, and was trading in the high-1.30 range.  With the  ECB’s interest rate cut behind us, it remains to  be seen if the Eurozone economy will get a lift and produce better numbers. Meanwhile, ECB head Mario Draghi said that the ECB could make further cuts if needed. In economic news, France was in the spotlight, and the news was mixed. Industrial Production missed the estimate, while the trade deficit improved. Today’s highlight is German Factory Orders. In the US, there are two minor releases, as well as a speech from Treasury Secretary Jack Lew.

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, touching a high of 1.3094, before consolidating at 1.3077. The pair  is unchanged in the European session.
• Current range: 1.3030 to 1.3100.

Further levels in both directions:    

• Below: 1.3030, 1.3000, 1.2960, 1.2880, 1.2805, 1.2750 and 1.27.
• Above: 1.31, 1.3160, 1.32, 1.3255, 1.3290, 1.3350 and 1.34.
• 1.3030 is providing support.
• 1.3100 is the next resistance line. 1.3160 is stronger.

Euro  continues to  show little  movement  – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:45 French Industrial Production. Exp. -0.2%. Actual -0.9%.
• 6:45 French Government Budget Balance. Actual -31.0B.
• 6:45 French Trade Balance. Estimate -5.3B. Actual -4.7B.
• 10:00 German Factory Orders. Exp. -0.4%.
• 14:00 US IBD/TIPP Economic Optimism. Exp. 47.1 points.
• 19:00 US Consumer Credit. Exp. 16.2B.
• 20:00 US Treasury Secretary Jack Lew Speaks.

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

EUR/USD Sentiment

• Euro bounces as ECB lowers rates: Late last week, 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  , and the euro lost ground as a result.  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.
• Draghi open to further cuts: With the ECB taking action and lowering interest rates, the markets were all ears as ECB head Mario Draghi spoke in Rome. Draghi said that last week’s cut was needed due to the continuing slowdown in the Eurozone, and urged members to take the necessary steps to get their fiscal houses in order. Draghi repeated that the ECB was open to lowering rates further, as well as  cutting its deposit rates below zero. When he mentioned the latter point  last week, the euro took a dive, but this time, the markets did not react. However, not all policymakers favor further reductions. Yves Mersch, an ECB board member, stated that interest rate cuts  have limits to their effectiveness.
• 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.