EUR/USD - Euro Moves Higher After ECB Holds The Course

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

By Kenny Fisher

EUR/USD has edged lower in Friday trading, as the pair trades in the low-1.35 range early in the European session. As expected, the ECB opted to maintain interest rates at their present level of 0.25%. The euro did react positively after ECB head Mario Draghi said that the central bank would refrain from taking any action at present to deal with low inflation levels in the eurozone. Over in the US, Unemployment Claims rebounded nicely and came in below the estimate. In Friday news, German Trade Balance looked sharp, climbing to a three-month high. Today's highlight is the US Non-Farm Employment Change, which will be released together with the Unemployment Rate.

With the eurozone affected by very weak inflation, the markets were waiting to see if the ECB would take any action on Thursday. With the benchmark interest rate at a record low level of 0.25%, clearly there isn't much room to reduce rates, but there was talk of lowering deposit rates below zero. Such a move would likely hurt the euro due to investors dumping their euros in favor of other currencies. When this didn't happen, the euro jumped, gaining about a cent after Draghi's press conference. Draghi then reiterated what we've heard many times over, which is that for the foreseeable future interest rates will stay at their current levels or could go even lower. What action, if any, the ECB takes when it sets rates in March will be heavily influenced by the inflation situation in the Eurozone. If inflation weakens further, the ECB will be under strong pressure to make a move, such as lowering deposit rates.

The highlight of the week is the (official) Nonfarm Employment Change, which will be released later on Friday. Earlier this week, ADP Non-Farm Employment Change disappointed badly, sliding to 175 thousand in January, compared to 238 thousand a month earlier. This was well shy of the estimate of 191 thousand. Is the ADP release a prelude to grim tidings from Non-Farm Payrolls on Friday? If the NFP falters as well, the Fed could delay its next QE taper and the fallout from such a negative message could hurt the US dollar. At the same time, there was good news on the employment front this week, as Unemployment Claims dropped to 331 thousand, beating the estimate of 337 thousand.

Eurozone PMIs looked solid in January. The Spanish and eurozone releases came in above the 50-point line, pointing to expansion. Italian Services PMI also improved, but remains in contraction mode. These numbers come on the heels of Manufacturing PMIs which also looked solid. At the same time, eurozone Retail Sales slipped 1.6%, well off the estimate of a 0.7% decline. This key consumer spending indicator has posted declines in three of the past four readings, pointing to weak consumer spending, which is a key component of economic growth.

EUR/USD for Friday, February 7, 2014

Forex Rate Graph 21/1/13

EUR/USD February 7 at 9:15 GMT

EUR/USD 1.3564 H: 1.3595 L: 1.3553

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3267 1.3347 1.3410 1.3585 1.3649 1.3786
Click to enlarge
  • EUR/USD has reversed directions on Friday and has moved lower. The pair has edged lower in the European session.
  • 1.3410 continues to provide support. This is followed by a support line at 1.3347.
  • 1.3585 is the first line of resistance. This is a weak line which could be tested during the day. The next resistance line is 1.3649.
  • Current range: 1.3410 to 1.3585

Further levels in both directions:

  • Below: 1.3410, 1.3347, 1.3267 and 1.3189
  • Above: 1.3585, 1.3649, 1.3786, 1.3893 and 1.4000

OANDA's Open Positions Ratio

After showing no movement on Thursday, EUR/USD ratio is back in action in Friday trading, pointing to gains in long positions. This is not reflected in the pair's current movement, as the euro has edged lower on Friday. Short positions are the majority in the ratio, indicative of trader bias towards the dollar posting further gains.

The euro has shown some strong movement since the ECB rate announcement on Thursday. With the US releasing Nonfarm Employment Change later today, traders can expect some movement from EUR/USD in the North American session.

EUR/USD Fundamentals

  • 7:00 German Trade Balance. Estimate 17.3B. Actual 18.5B.
  • 7:45 French Government Budget Balance. Actual -74.9B.
  • 7:45 French Trade Balance. Estimate -5.6B. Actual -5.2B.
  • 11:00 German Industrial Production. Estimate 0.5%.
  • 13:30 US Nonfarm Employment Change. Estimate 185K.
  • 13:30 US Unemployment Rate. Estimate 6.7%.
  • 13:30 US Average Hourly Earnings. Estimate 0.2%.
  • 20:00 US Consumer Credit. Estimate 12.4B.

*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.