EUR/USD: Euro Losses Continue On Weak German Data

Includes: ERO, EU, FXE
by: Dean Popplewell

By Kenny Fisher

EUR/USD continues to point downwards on Friday, as the pair has dropped below the 1.36 line. There was plenty of action on the release front on Thursday, as the ECB held the course and US employment numbers looked sharp, led by Nonfarm Payrolls. The euro lost more ground, and has slid about 160 points against the US dollar this week. US markets are closed for the Fourth of July holiday, so traders can expect thin trade during the day. In the Eurozone, there was more disappointing news out of Germany, as Factory Orders posted a decline of -1.7%.

US employment numbers were the perfect prelude to a long holiday weekend in the US, as Nonfarm Payrolls and the Unemployment Rate sparkled. Nonfarm Payrolls, one of the most important indicators, bounced back in June with a strong gain of 288 thousand new jobs. This crushed the estimate of 214 thousand. Unemployment Claims was steady at 315 thousand, almost replicating the estimate of 314 thousand. There was more good news from the Unemployment Rate, which continues to move downward. The indicator dipped to 6.1%, its lowest level since September 2008. The strong employment numbers are sure to increase speculation about an interest rate hike by the Federal Reserve, and after the Fourth of July holiday, the markets will be closely attuned to remarks from Federal Reserve policymakers.

As widely expected, the ECB maintained the benchmark interest rate at 0.15% at its July policy meeting. This was is sharp contrast to the previous meeting, in which the ECB lowered the benchmark rate from 0.25% and introduced negative deposit rates for the first time. ECB head Mario Draghi noted that inflation rates remain very low, and said that the ECB was ready to implement "unconventional instruments" if necessary. As well, he reiterated that the ultra-low interest rates would remain at current levels or lower for the foreseeable future.

German data was dismal this week, as the largest economy in the Eurozone is showing signs of distress. The week started with Retail Sales, the primary gauge of consumer spending, posting its third straight decline. The indicator came in at -0.6% last month, well off the forecast of +0.8%. Unemployment Change, which had posted strong declines in the first quarter of the year, has reversed direction and recorded two straight gains, pointing to trouble in the employment sector. In June, the indicator came in at +9K, compared to an estimate of -9K. There was no relief on Friday from Factory Orders, which dropped by 1.7%, its second decline in three readings. The indicator fell far short of the estimate of -0.8%. Further weak numbers out of Germany could lead to the euro falling even further.

EUR/USD for Friday, July 4, 2014

EUR/USD July 4 at 8:50 GMT

EUR/USD 1.3591 H: 1.3612 L: 1.3686

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3346 1.3487 1.3585 1.3651 1.3786 1.3893
  • EUR/USD has been very quiet in the Asian and European sessions.
  • On the downside, the pair is testing support at 1.3651. Will this line fall? 1.3585 follows.
  • 1.3786 is a strong resistance line.
  • Current range: 1.3651 to 1.3786

Further levels in both directions:

  • Below: 1.3585, 1.3487, 1.3346 and 1.3295
  • Above: 1.3651, 1.3786, 1.3893 and 1.40

OANDA's Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions on Thursday, continuing the trend seen a day earlier. This is not consistent with the movement of the pair, as the euro continues to post losses. The ratio is showing a majority of short positions, indicative of a trader bias to the US dollar continuing to move higher against the euro.

EUR/USD Fundamentals

  • 6:00 German Factory Orders. Estimate -0.8%. Actual -1.7%.
  • 8:10 Eurozone Retail PMI. Actual 50 points.

*Key releases are highlighted in bold

*All release times are GMT