EUR/USD Nov. 2 – Slipping After Weak Spanish, Italian

EUR/USD  continues to  weaken from yesterday’s (November 1st) levels, as Spanish and Italy Manufacturing PMIs posted lowers readings than the previous month. At a meeting of the Euro-zone finance ministers on Wednesday, there were optimistic reports of progress on the thorny issue of more aid for Greece under the bailout agreement. In Spain, the government continues to hedge regarding a bailout, which is adding to market uncertainty and keeping pressure on the euro.  The shortened trading week wraps up with two key employment releases out of the US – Non-Farm Employment Change and the Unemployment Rate. With the US presidential election only four days away, politicians and analysts alike will be closely monitoring these readings.

Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.

EUR/USD Technical

• Asian session: Euro/dollar spent most of the session at around 1.2930,  before edging lower.  In the European session, the pair continues to  drop, and has fallen below 1.29.
• Current range: 1.2814 to 1.29.

Further levels in both directions:

• Below: 1.2814, 1.2750 and 1.2670.
• Above: 1.29, 1.2960, 1.30, 1.3030, 1.3075, 1.3105, 1.3170, 1.3290 and 1.34.
• 1.29 has reverted to  a resistance line as the pair weakens.  1.2960 is stronger.
• 1.2814 is the next line on the downside.

Euro/dollar weakens on disappointing Spanish, Italian data- click on the graph to enlarge.

EUR/USD Fundamentals

• 8:15 Spanish Manufacturing PMI. Actual 43.5 points.
• 8:45  Italian Manufacturing PMI. Exp. 45.9 points. Actual 45.5 points.
• 9:00  Euro-zone Final  Manufacturing PMI. Exp. 45.3 points. Actual 45.4 points.
• 12:30 US Non-Farm Employment Change. Exp. 123K.
• 12:30 US Unemployment Rate. Exp. 7.9%.
• 12:30 US Average Hourly Earnings. Exp. +0.2%.
• 14:00 US Factory Orders. Exp. +4.7%.
• 18:25 US FOMC Member John Williams Speaks.

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

EUR/USD Sentiment

• Greek bailout deal imminent?: At the Eurogroup meeting earlier this week, the Euro-zone finance ministers surprised the markets following an announcement that “considerable progress” had been made with regard to a deal between Greece and the troika. An agreement would pave the way for the next tranche of aid to Greece, and allow it to avoid bankruptcy. The chairman of the Eurogroup, Jean Claude Juncker, sounded very optimistic, saying that he expected a deal to be reached when the finance ministers meet in person on November 12, provided that Greece accepted a list of conditions. However, the Greek coalition government is split on whether to accept the troika demands, and the government has delayed the vote on new austerity measures by another week. Will this report of an imminent deal prove to be legitimate?
• Constitutional snag could derail Greek deal: The thorny negotiations between the Greek government and the troika are not only dependent on economic and political factors, but constitutional issues as well.  Two months ago, a German court ruled that the ESM was constitutional as far as Germany was concerned. Now, a Greek court has said that proposed retirement age hikes and pension cuts, demanded by the troika, could be   unconstitutional. This could present another snag to the next tranche of  aid for Greece, which desparately needs the funds to stay afloat.
• US digs out of Hurricane Sandy: Rescue and recovery efforts continue as the US tries to steady itself after Hurricane Sandy  ravaged the US northeast on Monday. Sandy has left enormous damage and misery  in its wake. At least 80 people have died, damage is estimated at $50 billion so far, and millions of people remain without power. New York City, the country’s main financial center, was hit hard, and large parts of the city remain paralyzed. The city is slowly getting back on its feet, as the airports and stock exchanges are again running. After being on the back-burner all week, the presidential candidates have resumed their campaigns in this super-tight contest.
• Spain remains mum on bailout, despite economic woes:  Spain is in the grips of a recession, and the economy shows no sign of improving in the near future. Unemployment rate hit another record, rising slightly to 25%. Flash GDP declined for the fourth straight quarter, dropping by 0.3% in Q3, and today’s Manufacturing PMI pointed to further contraction.Yet, despite the worsening economy, the government appears in no rush to ask for an aid package, although it is “considering” doing so at some point. Ironically, promises of help from the EU have lowered Spain’s borrowing costs from their unsustainable levels, resulting in less pressure on the government to request an aid package. The continuing uncertainty promises to keep Spain in the headlines, sour market sentiment and put pressure on the euro.
• US  economy hot topic  before elections: The slow pace of the recovery is  perhaps the hottest topic in  the very tight  US elections. Obama supporters says he  inherited an economic mess and has made impressive progress,  while supporters of Romney are saying that  the  government has crushed the middle class, and the  recovery is reaching too few Americans, too slowly. The economic data is pointing to some improvement, such as  GDP  growth in Q3 of 2.0%. As well, consumer and business confidence is up. Yet unemployment  reamins very high and the  mountain of debt keeps  on getting bigger. Will the US voter give  Obama another thumbs up, or  choose change and elect Romney? We’ll have the answer next Tuesday.
• Italy facing economic, political difficulties: The markets were pleased with the Italian 10-year Bond Auction, which dropped to an average yield of 4.92%. This was a drop from the previous auction, with a yield of 5.24%, and the lowest level in 17 months. The positive economic news comes at at delicate time for the Italian government, which is facing growing debt and a weak economy, as underscored by today’s weak Manufacturing PMI. Former PM Silvio Berlusconi, who heads the largest party in parliament, has accused the government of leading Italy into recession. If the unpredictable Berlusconi ends his support for the government, Italy could face early elections.