The single currency continues its consolidation below the psychological 1.3000 mark, as the FX community is eagerly waiting for the Non-farm payrolls due tomorrow (Friday). Market consensus expects a reading of 125K and an uptick of the unemployment rate to 7.9%.
Overall, the mood has been flat since the very beginning of the week, with peaks of excitement in EUR/USD only delivered by occasional rumors.
On the Spanish front, President Mariano Rajoy left things clear when he ruled out any call for financial aid throughout the present year, although he left the door open for a potential request during 2013. This new position of the Spanish government thus removes a relevant support for euro bulls, as the safe net derived from the presence of the ECB and the likeliness of an activation of its OMT program would have no reason to be… so far.
Greece, on the other hand, continues to show signs of deterioration in its fundamentals, shown by the recent dip of the manufacturing PMI in October. Further details out of the index remarks that output and inflows of new work have intensified its drop, and the new export orders have descended at a velocity last seen in 2009, along with the decline in employment in the sector. Adding to the gloomy scenario, latest budget projections point to a debt/GDP ratio above 190% for 2014, far above previous estimates. Mystery and intrigue remain on November 12, when the Eurogroup will have to decide about the reactivation of the lending programme to the country.
… ECB, worsen EU fundamentals, 1.300
The latest Bank Lending Survey by the ECB showed that credit conditions are tightening all over, and that unconventional policy measures seem not enough to curb the grim panorama in the lending activity. Phillip Marey, researcher at Rabobank, argues:
The single biggest contributor to credit tightening now is 'expectations of general economic activity'. Moreover, the weak economy is not only weighing on credit demand but is also affecting the quality of the banks' asset base and thus is affecting the supply side indirectly. Overall, this strengthens the case for another rate cut, perhaps as soon as December.
Karen Jones, analyst at Commerzbank, believes in a potential retest to the area of 1.3025/45 in the near term, however she remains cautious, as "we would expect failure here and consider that attention remains on the 1.2803/34". A violation of this area would then accelerate the downside to 1.2472/33
… NFP is on sight
Friday promises to be interesting on both sides of the Atlantic. Starting with the euro bloc, final prints of manufacturing PMI would gauge the health of the key sector in the euro zone, ahead of the NFP and the jobless rate in the U.S. Of less relevance, Factory Orders in the American economy will later close the docket.
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