EUR/USD Oct. 1 – Hits Seven-Month High as US Shutdown

EUR/USD  has posted gains on Tuesday, as the pair climbed  above 1.3570, a  level not seen since February. The dollar lost ground as the US government shut down, as politicians were unable to find a way out of the budget impasse. In economic news, Spanish and Italian PMIs missed their estimates. German Unemployment Change was well above the estimate, while the Eurozone Unemployment Rate edged lower. Over in the US, today’s key event is ISM Manufacturing PMI. The index has looked strong in recent releases and little change is expected in the September release.

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

EUR/USD Technical

• In the  Asian  session, EUR/USD showed some upward movement late in the Asian session. The pair is showing volatility in the European session and touched  a high of 1.3586 before retracting to the mid-1.35 range.
• Current range: 1.35 to 1.3570.

Further levels in both directions:  

• Below: 1.3500, 1.3460, 1.3415, 1.3325, 1.3240, 1.3175, 1.31, 1.3050 and 1.3000.
• Above: 1.3570, 1.3650, 1.3710, 1.3800, 1.3870 and 1.3940.
• The round number of 1.35 is providing support.
• 1.3570 has weakened in resistance. 1.3650 is stronger.

EUR/USD Fundamentals

• 7:15 Spanish Manufacturing PMI. Exp. 51.6, Actual 50.7 points.
• 7:15  Italian Manufacturing PMI. Exp. 51.2, Actual 50.8 points.
• 7:55  German Unemployment Change. Exp. -5K, Actual 25K.
• 8:00 Eurozone Final Manufacturing PMI. Exp. 51.1, Actual 51.1 points.
• 8:00  Italian Monthly Unemployment Rate. Exp. 12.2%, Actual 12.0%.
• 9:00  Eurozone Unemployment Rate. Exp. 12.1%, Actual 12.0%.
• 13:00 US Final Manufacturing PMI. Exp. 52.8 points.
• 14:00 US ISM Manufacturing PMI. Exp. 55.3 points.
• 14:00 US ISM Manufacturing Prices. Exp. 55.2 points.
• Tentative –  US Construction Spending. Exp. 0.5%.
• All Day – US Total Vehicle Sales. Exp. 16.1M.

* All times are GMT.

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

EUR/USD Sentiment

• US Government Shutdown Starts: With Congress failing to break the budget impasse on September 30, the last day of the current financial year, the US government has shut down non-essential services. The economic damage is not expected to be significant, provided that the shutdown does not last more than a few days. However, this crisis will pale in comparison to that of the  debt ceiling, which must be  resolved  by October 17. If no agreement  on  raising the debt ceiling is reached by  that time,  the US could default on bond payments. A default, even a “technical” one, could shake the  entire financial world.
• Eurozone Unemployment Rate dips: Employment data out of Europe was mixed on Tuesday. There was good news as the Eurozone Unemployment Rate dropped from 12.1% to 12.0% in September, a five-month low. However, German Unemployment Change shot up to its highest level in over  four years, rising from 7 thousand  to 25 thousand. This surprised the markets, which had anticipated a decline of -7 thousand. Even though the Eurozone appears to have exited the recession, high unemployment continues to weigh on the recovery and job creation remains weak.
• Italian government collapses: The Berlusconi  saga, which seems to never end,  flared  up again on the weekend, as  ex-PM Silvio Berlusconi pulled out of the coalition government led by Enrico Letta. The flamboyant  Berlosconi urged Letta to dissolve parliament and call  new elections, but  Letta has  opted to seek a vote of confidence on Wednesday, hoping to keep his  battered coalition together.  Italian politics are  often full of surprises and twists,  and we could be in for quite a show this week.
• Octaper seems less likely: Apart from the NFP, the market prices the chances of a reduction in bond buys in October according to the Fed’s sentiment. FOMC member James Bullard told us that the decision not to taper QE in September was a close call, and that  tapering in October is certainly possible. However, consequent FOMC speakers poured some cold water over this option. It’s important to follow Rosengren and especially Dudley. The Fed will hold its next policy meeting at the end of October.
• German coalition  talks  could last for a long time:: As widely expected, Chancellor Angela Merkel was re-elected to a third straight term in convincing style. Merkel’s conservative bloc  steamrolled to  victory  but  failed to win  an absolute majority, so she is now negotiating a coalition with either the big opposition SPD party or the smaller Greens. Given the past, this will take time. The outcome is likely to be a more pro-European government, which is good news for the Euro.

A recent technical analysis:  EURUSD Could Move Above 1.3600  – Elliott Wave Forecast