EUR/USD May 31 – Sharp Gains as US Numbers Falter

The euro continues to rally against the dollar, and enjoyed  sharp gains on Thursday.  EUR/USD    gained  around one cent,  as the pair took advantage of weak US  data.  The pair is trading in the mid-1.30 range in Friday’s European session.  Friday promises to be busy day, with a host of releases from the Eurozone and the US. The day has started with declines, as German Retail Sales and French Consumer Spending both dropped. Eurozone CPI Flash Estimate and the Unemployment Rate will be released later on Friday. In the US, today’s highlights include inflation and consumer confidence releases.

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

EUR/USD Technical

• Asian session: Euro/dollar settled down after a volatile day. The pair  touched a  low of 1.3032 and consolidated at 1.3040. The pair has edged up in the European session.

Current range: 1.30 – 1.3050.

Further levels in both directions:  

• Below: 1.30, 1.2960, 1.2890, 1.2840, 1.2800, 1.2750, 1.27, 1.2624 and 1.2587.
• Above: 1.3050, 1.31, 1.3160 and 1.32, 1.3255, and 1.3290.
• The pair is testing 1.3050 on the upside.  1.3100 is next.
• 1.30 is providing weak support.  This is followed by 1.2960.

Euro  climbs to mid-1.30 range after  weak US numbers  – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00 German Retail Sales. Exp. 0.3%. Actual -0.4%.
• 6:45 French Consumer Spending. Exp. -0.5%. Actual -0.3%.
• 8:00 Italian Quarterly Unemployment Rate. Exp. 11.2%.
• 8:00 Italian  Monthly Unemployment Rate. Exp. 11.6%.
• All Day: OPEC Meetings.
• 9:00 Eurozone CPI Flash Estimate. Exp. 1.4%.
• 9:00 Eurozone Unemployment Rate. Exp. 12.2%.
• 9:00 Italian Preliminary CPI. Exp. 0.1%.
•  12:30 US  Core PCE  Price Index. Exp. 0.1%.
•  12:30 US  Personal Spending. Exp. 0.2%.
•  12:30 US  Personal Income. Exp. 0.2%.
• 13:45 US Chicago PMI. Exp. 50.3 points.
• 13:55 US Revised UoM Consumer Sentiment. Exp. 84.1 points.
• 13:55 US Revised UoM Inflation Expectations.
• 15:00 US Crude Oil Inventories. Exp. -0.8M.

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

EUR/USD Sentiment

• Dollar drops after dismal US numbers: Any hopes for a strong week out of the US were dashed, as Thursday’s key indicators were unimpressive. Preliminary GDP improved to 2.4%, but missed the estimate of 2.5% Unemployment Claims shot up to 350 thousand, well above the estimate of 342 thousand.  Finally, Pending Home Sales gained just 0.3%, way off the forecast of a 1.3% gain. These numbers point to weakness in the US economy, which seems to take a step or two backwards for every step forwards. The euro took full advantage of the weak US releases, and pushed into 1.30 territory. The euro has enjoyed a late-week rally, jumping about 150 points since Wednesday.
• Concern rising over weak German numbers:  This is  growing concern about the health of the German economy, as the markets continue to see mixed economic numbers. On Wednesday, Unemployment Change looked terrible. The key indicator shot up to 21 thousand, blowing past the estimate of 4 thousand. This was the highest reading since June 2008. There was better news on the inflation front, as Preliminary CPI rebounded nicely and posted a 0.4% gain, surpassing the forecast of 0.2%. Friday brought more bad news, as Retail Sales slumped, declining 0.4%. This was well  below the estimate of 0.1%, and marked a four-month low. Where is the  German economy headed? The Eurozone will find it more than difficult to get back on track if Europe’s locomotive is not steaming in the right direction. Traders should keep a close eye on German numbers, which are often market-movers.
• QE  speculation continues:  Although the Fed hasn’t made any changes to the current round of QE, Fed policymakers, including Fed  Chair Bernanke,  continue to hint that QE  could be scaled back  in the next few months. The currency markets have reacted sharply to talk about terminating QE, and much of the volatility we are seeing  from EUR/USD can be attributed to market uncertainty about what action the Fed will take. Talk of an end to QE has helped the dollar, and  we can expect the currency markets to continue to be very sensitive to further talk of tapering QE.
• Negative Interest Rates for ECB? Recent comments from the ECB about negative interest rates have affected the euro,  and  ECB  Mario Draghi and other policymakers  have expressed  openness to the idea. Earlier in the week, ECB Executive Board member Joerg Asmussen said that the ECB  will continue its expansive monetary policy in order to boost the Eurozone economy,  but  urged caution on the  question of  whether  to continue reducing rates. Asmussen  said that the  ECB can’t  simply fix  uncompetitive economies with monetary policy, such as the adopting negative interest rates. The ECB’s deposit rate currently stands at zero, and if the ECB decides to go lower, it would be the first central bank to introduce negative interest rates.