EUR/USD Oct. 3 – Climbs Above 1.36 As Retail Sales Jump

EUR/USD  continues to chip away at the retreating US dollar in Thursday trading. The pair has crossed over the 1.36 level for the first time since February, as the euro got a boost from a strong Eurozone Retail Sales release on Thursday. In other developments, ECB head Mario Draghi sounded positive about the Eurozone recovery, and the Italian government survived a vote of no confidence. In the US,  today’s highlights  are  ISM Non-Manufacturing PMI and Unemployment Claims. The markets are  expecting weaker numbers from both indicators. Meanwhile, the government shutdown continues, as Congress has been unable to reach an agreement that would end the budget impasse.

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 moved higher, touching a high of 1.3622. The pair  remains  above  the 1.36 line  in the European session.
• Current range: 1.3570 to 1.3650.

Further levels in both directions:

• Below: 1.3570, 1.3500, 1.3460, 1.3415, 1.3325, 1.3240, 1.3175, 1.31, 1.3050 and 1.3000.
• Above: 1.3650, 1.3710, 1.3800, 1.3870 and 1.3940.
• 1.3570 has reverted to a support role as the pair moves higher. 1.3500 follows.
• 1.3650 is a weak resistance line. 1.3710 is next.

EUR/USD Fundamentals

• 7:15 Spanish Services PMI. Exp. 50.9, Actual 49.0 points.
• 7:45  Italian Services PMI. Exp. 49.3, Actual  52.7 points.
• 8:00  Eurozone Final  Services PMI. Exp. 52.1, Actual  52.1 points.
• 8:44 Spanish 10-year Bond Auction. Actual 4.27%.
• 8:57  French 10-year Bond Auction. Actual 2.37%.
• 9:00 Eurozone Retail Sales. Exp. 0.3%, Actual 0.7%.
• 11:30 US Challenger Job Cuts.
• 12:30 US Unemployment Claims. Exp. 315K.
• 12:30 US ISM Non-Manufacturing PMI. Exp. 57.2 points.
• 14:30 US Natural Gas Storage. Exp. 96B.
• 17:30 US FOMC Member  Jerome  Powell Speaks.

* All times are GMT.

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

EUR/USD Sentiment

• No progress over budget as  shutdown continues:  With Congress locked in a partisan  battle over the budget, the US government shutdown continues. With the government lacking funds to operate, it has been forced to close non-essential services and send almost a million government workers home.  Republicans want a commitment from the Democrats to  delay Obamacare before passing a budget, and the Dems say no way. The Republicans and Democrats are  entrenched in their positions, but public resentment may force the politicians to get their act together quickly.    The economic damage is not expected to be significant, provided that the shutdown does not last more than a few days. Another potential crisis lies just around the corner, as the agreement must be reached over the debt ceiling by October 17. However, the bad blood between Democrats and Republicans could well complicate attempts to reach a compromise. A deadlock over the debt ceiling which be a much more serious crisis than the present shutdown. If no agreement is reached on  raising the debt ceiling, the US could default on bond payments. A default, even a “technical” one, could shake the  entire financial world.
• Draghi says rates to stay low: As expected, the ECB maintained its key interest rate at 0.50%. There was more interest in the follow-up press conference, which continues to overshadow the interest rate announcement. At the press, conference, ECB President Draghi downplayed risks to the fragile Eurozone economy, and repeated that interest rates would remain at current or lower levels for an “extended period of time” given the low growth levels and weak inflation in the Eurozone.
• Italian government wins vote of confidence: There was some good news out of Italy on the political and economic fronts. Prime Minister Enrico Letta easily  won a no-confidence vote in the Senate, after ex-PM Silvio Berlusconi supported the government, despite an earlier  threat to vote against it.  As well, Italian Services PMI barreled past the 50-point line for the  first time in over two years. The index jumped from 48.8  points in August  to 52.7 in September, easily surpassing  the estimate of 49.2 points. A reading over 50  indicates expansion.  Both events are bullish for the euro, which continues to hammer away at the US dollar.
• Markets Eye Fed meeting in October:  The Federal Reserve surprised the markets in September when it didn’t taper QE, and the next dates to circle  are October 29-  30, when the Fed holds its next policy meeting. Employment data will be an important factor in the Fed’s decision and this week’s ADP Non-Farm Payrolls did not impress. Unemployment Claims will be released later  on Thursday.  The all-important Non-Farm Payrolls, due for release on Friday has been cancelled due to the shutdown.