EUR/USD Oct. 4 – Slightly Higher Ahead of ECB Rate

EUR/USD  continues to edge  upwards,  as the markets  focus  is on the ECB today. The central bank will  announce its Minimum Bid  Rate, which is expected to remain unchanged at 0.75%.  This will be  followed by a press conference hosted by ECB head Mario  Draghi.  The markets will be listening closely for any statements concerning a Spanish bailout, as the uncertainty over a rescue package for Spain continues. Attention will shift to the US later today, with the release of Unemployment Claims and the minutes of the FOMC’s most recent policy meeting.  

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

EUR/USD Technical

• Asian session: Euro/dollar  edged up,  touching a high of  1.2949. The pair  is steady  the European session.
• Current range: 1.2900 to 1.2960.

Further levels in both directions:  

• Below: 1.2900, 1.2814, 1.2750, 1.2670, 1.2624, 1.2587, 1.2520 and 1.2460.
• Above: 1.2960, 1.30, 1.3060, 1.3105, 1.32, 1.3290, 1.34, 1.3437, 1.3480 and 1.3540.
• 1.29 is providing support.
• 1.2960 looks to be tested as the pair moves upwards.

Euro/dollar moving up ahead of ECB rate announcement- click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00  French 10-year Bond Auction. Actual 2.28%.
• 11:30  US Challenger Job Cuts.
• 11:45 ECB Minimum Bid Rate. Exp. 0.75%.
• 12:30 ECB Press Conference.
• 12:30 US Unemployment Claims. Exp. 371K.
• 14:00 US Factory Orders. Exp. -6.0%.
• 14:30 US Natural Gas Storage. Exp. 72B.
• 18:00 US FOMC Meeting Minutes.

EUR/USD Sentiment

• Uncertainty continues over Spanish bailout: After unveiling its austerity budget, the Spanish government continues to keep the markets guessing about a bailout request from the ECB. With the rumor mill in full gear, Spanish Prime Minister Mariano Rajoy was forced to dismiss media reports that the government might ask for a bailout as early as this weekend. However, other zone members are far from happy about a Spanish aid package. Germany has stated its unease about yet another bailout, and finance ministers from Germany, the Netherlands and Finland declared that bank supervision and bank bailout would only come for new banking problems and not for legacy ones. Thus, the agreements in the June 2012 EU Summit regarding a banking bailout for Spain seem null and void. Breaking the link between sovereigns and banks was a key value less than 3 months ago, and now it is gone. Many analysts believe the bailout request is just a matter of time, given that Spain has one of the largest public deficits in the zone, and the country is mired into its second recession in just three years. Spanish Services PMI dropped sharply in August, and more gloomy economic data is likely on the way.
• Will ECB  slash rates again?: Persistently weak employment and PMI data out of the Euro-zone has convinced many analysts that the Euro-zone was in a recession in Q3. Unemployment rates in Greece and Spain are practically off the charts, and the Euro-zone hit a record 11.4% earlier this week. PMIs throughout the zone are mostly below the 50.0 point level, indicating contraction in many, if not most, of sectors of the economy. With no sign of improvement on the horizon, speculation is increasing that the ECB’s bond-buying plan will not be enough. Although the ECB is not expected to  lower interest rates in today’s announcement,  there is increase talk of the Central Bank  lowering rates to 0.50% before the end of the year.
• EU, IMF  split over Greek bailout: Tensions are rising between Greece’s international lenders, which could spell trouble for the euro. EU leaders have softened their position, and are willing to give Greece more time to meet its repayment obligations. However, the IMF wants to see the European countries write off some of their Greece debt. The  EU, for its part, does not relish writing off what could amount to tens of billions of euros.  A meeting of European finance ministers is set for October 8th, and could be seen as a deadline to accelerate the talks. Meanwhile, Greece released a draft budget for 2013, and the economic picture is anything but rosy. The economy is expected to shrink by 3.8%, and unemployment is forecast to remain above 24%.
• Pro-independence fever grips Spanish regions: As if Spain doesn’t have enough troubles to deal with, the independence movement in Catalonia is pushing forward, fast. After setting a date for elections (Nov. 25th), the northeastern region of Spain passed a motion for independence. Predictably, this has been  met by a sharp, angry reaction from  the central government. With the economic situation deteriorating, both sides find it hard to find a compromise. And now, also the Basque Country sees more calls for independence, despite enjoying a more favorable economic model.
• US Economy – zigzagging continues: The downwards revision of Q2 GDP was quite depressing and showed that the US economy is at stall speed. However, improvement from housing and a surprising drop in jobless claims are positive points. Both and The ISM Non-Manufacturing PMI easily beat the market estimate and the ADP Non-Farm Employment Change pushed higher for the third consecutive month.  These positive readings have built up the expectations towards the all important Non-Farm Payrolls on Friday.