EUR/USD - Volatility Ahead Of ECB Rate Decision

 |  Includes: FXE, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

We're seeing some volatility from EUR/USD on Thursday, as the pair trades just below the 1.36 line in the European session. The markets are eagerly awaiting the ECB Rate Statement and follow-up press conference with ECB head Mario Draghi. Will the ECB make any monetary moves? There are no other eurozone releases on Thursday. Over in the US, it's another busy day, highlighted by Unemployment Claims and Preliminary GDP.

The euro has been jumpy ahead of Thursday's ECB policy statement, as the markets are unsure what to expect from the ECB. The markets were caught off guard when the ECB cut rates to 0.25% in November, but with the benchmark interest rate at a record low, analysts are not expecting another 0.25% reduction. However, the ECB could choose to cut rates by a token 10 or 15 basis points. ECB policymakers have raised the possibility of lowering the deposit rate of 0.0%, but this is an unlikely scenario, since the ECB deposit rate has never been in negative territory before. Even if the ECB doesn't make a move, Mario Draghi's press conference has often been a market-mover, so it could be an eventful day for EUR/USD. Draghi is expected to maintain a dovish stance with an emphasis on the ECB's easing bias.

Over in the U.S., employment numbers continue to improve. ADP Non-Farm Employment Change shot up to 215 thousand, its sharpest gain since December 2012. This was a sharp increase from the October release of 130 thousand and easily surpassed the estimate of 172 thousand. If Thursday's Unemployment Claims has another strong reading, the dollar could make some gains. Meanwhile, New Home Sales surged in November, climbing to 444 thousand, up from 354 thousand the month before. This was well above the estimate of 432 thousand, and points to solid growth in the U.S. housing sector.

Spanish Services PMI looked sharp in November, as the index climbed to 51.5 points, up from 49.6 the month before. This was the PMI’s highest level in over six years. Italian Services PMI took the opposite route, dropping to 47.2 points, compared to 50.5 in the previous reading. The eurozone Manufacturing PMI remained steady, coming in at a healthy 51.6 points. PMI data is an important gauge of economic activity and can affect the movement of EUR/USD. Meanwhile, for the first time in the month of November, Spanish unemployment claims declined. The key indicator posted a decline of 2.5 thousand, surprising the markets, which had forecast a gain of 49.3 thousand. This was the first drop since July. Traditionally, the summer months show a decline due to the influx of tourists, so the November release was a pleasant surprise. Now the big question is whether the unemployment rate, which stands at a staggering 26%, will follow suit and show some improvement.

EUR/USD for Thursday, December 5, 2013

Forex Rate Graph 21/1/13

EUR/USD December 5 at 11:45 GMT

EUR/USD 1.3591 H: 1.3639 L: 1.3580

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3410 1.3500 1.3585 1.3649 1.3786 1.3893
Click to enlarge
  • EUR/USD is showing volatility in Thursday trading. The pair climbed late in the Asian session, touching a high of 1.3639. EUR/USD has retracted in the European session and dropped back below the 1.36 line.
  • On the downside, 1.3585 is under strong pressure. This is followed by support at the round number of 1.3500.
  • The pair is facing resistance at 1.3649. This is followed by a resistance line at 1.3786, which has remained intact since late October.
  • Current range: 1.3585 to 1.3649

Further levels in both directions:

  • Below: 1.3585, 1.3500, 1.3410 and 1.3325
  • Above: 1.3649, 1.3786, 1.3893, 1.4000 and 1.4140

OANDA's Open Positions Ratio

EUR/USD ratio is unchanged in Thursday trading. This is reflected in the pair's movement, which has been unable to maintain any momentum. A large majority of the open positions remain short, indicative of a trader bias towards the dollar breaking out and posting gains against the euro.

The pair is trading close to the 1.36 line on Thursday. We could see some further volatility during the day, with the ECB setting the monthly interest rate and the U.S. releasing the all-important Unemployment Claims.

EUR/USD Fundamentals

  • 12:30 US Challenger Job Cuts.
  • 12:45 ECB Minimum Bid Rate. Estimate 0.25%, Actual 0.25%.
  • 13:30 ECB Press Conference.
  • 13:30 US Preliminary GDP. Estimate 3.0%.
  • 13:30 US Unemployment Claims. Estimate 328K.
  • 13:30 US Treasury Secretary Jack Lew Speaks.
  • 13:30 US Preliminary GDP Price Index. Estimate 1.9%.
  • 15:00 US Factory Orders. Estimate -0.9%.
  • 15:30 US Natural Gas Storage. Estimate -141B.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.