EUR/USD September 23 – Merkel Wins Big, Euro PMIs

EUR/USD  is  steady at the start of the new trading week, as the pair continues to trade in the low-1.35 range. The markets have plenty to keep them busy on Monday.  Germans went to the polls on  Monday, and Chancellor Angela Merkel easily won  a third consecutive term.  However, the makeup of the new coalition is yet to  be determined. In economic news, Euro PMIs are  pointing to a mixed picture.  It’s much quieter in the US, with just one economic release – Flash Manufacturing PMI.

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 was steady, touching a  high  of 1.3547 late in the session and consolidating at 1.3540. The pair has edged lower in the European session.

Current range: 1.3500 to 1.3570.

Further levels in both directions:

• Below: 1.3500, 1.3450, 1.3415, 1.3325, 1.3240, 1.3175, 1.3050 and 1.3000
• Above: 1.3570, 1.3650, 1.3710, 1.3800, 1.3870 and 1.3940.
• 1.3500 is  providing weak  support.  
• 1.3570 is the first resistance line on the road to the YTD high of 1.3710.

EUR/USD Fundamentals

• 7:00  French Flash Manufacturing PMI. Exp. 50.2, Actual 49.5 points.
• 7:00 French Flash  Services PMI. Exp. 49.3, Actual  50.7 points.
• 7:30  German Flash Manufacturing PMI. Exp. 52.3, Actual 51.3 points.
• 7:30  German  Flash Services PMI. Exp. 53.2, Actual 54.4 points.
• 8:00  Eurozone Flash Manufacturing PMI. Exp. 51.8, Actual 51.1 points.
• 8:00  Eurozone  Flash Services PMI. Exp. 51.1, Actual 52.1 points.
• 10:00 German Buba Monthly Report.
• 13:00 ECB President Mario Draghi Speaks.  Draghi will address the ECB’s Committee on Economic and Monetary Affairs in Brussels.
• 13:00 US Flash Manufacturing PMI. Estimate 54.2 points.
• 13:30 US FOMC Member  Dudley  Speaks.

* All times are GMT.

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

EUR/USD Sentiment

• Manufacturing PMIs down, but Services PMIs improve: Eurozone, German and French PMIs were released on Monday, and there was a strong consistency among the readings, as all the Manufacturing PMIs lost ground, while the Services PMIs improved. The good news from the mixed results was that all of the indexes posted readings above the 50-point level, with the exception of French Flash Manufacturing PMI. The 50-point line is a separator between contraction and expansion, so with the one exception, the services and manufacturing sectors continue to show expansion.
• Germans re-elect Merkel: Germans went to the polls on Sunday, and Chancellor Angela Merkel was reelected to a third straight term in convincing style. Unofficial results gave Merkel’s CDU and CSU bloc 41.5% of the vote, but the bloc appeared  several seats short  of a  super majority.  This means that  Merkel will  have to reach out to  one of the opposition parties to form a coalition, which could lead to some political uncertainty. Merkel’s big win is good news for the euro, but the ensuing uncertainty is not. As a result, the euro has shown little reaction to the election.
• Dollar  takes a tumble  as Fed balks on taper: Most analysts, including here, were surprised by thedecision not to taper  after many FOMC members said they were coming with an “open mind”. This sent the dollar down across the board. There were quite a few other reasons for tapering, but the Fed was worried about the tightening financial conditions (somewhat self-created with the taper talk in May-June) and the unconvincing growth in the economy. Bernanke reiterated that the unemployment rate overstates the real picture. However, he didn’t rule out the end of QE by mid-2014 or a taper in October, which is the  next date that the Federal Reserve  reconvenes for a policy meeting.
• US Data Shines:  Overshadowed by the FOMC Statement were excellent US releases on Thursday. Unemployment Claims came in at 309 thousand, well below the estimate of 331 thousand. Existing Home Sales rose to 5.48 million, crushing the estimate of 5.27 million, and posting its best level in over three years. The Philly Fed Manufacturing Index rocketed from 9.3 to 22.3 points, its best showing since May 2011. Perhaps if we’d seen this kinds of numbers a week or two ago, the Fed might  have voted differently with regard to QE tapering.

Here is a post FOMC technical outlook for EUR/USD.