EUR/USD Jan 4 – Slide Continues as 1.30 in Sight

The EUR/USD continues to drop, as the pair is struggling to stay above the important 1.30 line. The euro reacted negatively after the Federal Reserve expressed doubts about expanding the monetary easing measures. In fundamental news, US employment figures were a mix. Unemployment Claims were higher than the estimate, but the ADP Non-Farm Payrolls looked very sharp. The markets will have more employment numbers to chew on Friday, as the US releases the official Non-Farm Payrolls and the Unemployment Rate. Today’s other highlight out of the US is ISM Non-Manufacturing PMI. In Europe, German Retail Sales rebounded strongly, climbing 1.2%. Spanish Services PMI looked sharp, and other PMI data will be released later on Friday.

EUR/USD Technical

• Asian session: Euro/dollar edged downwards, and consolidated at 1.3016. The pair is unchanged in the European session.
• Current range: 1.30 to 1.3110.

Further levels in both directions:  

• Below: 1.30, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25 and 1.2440.
• Above: 1.3110, 1.3130, 1.3180, 1.3240, 1.3290, 1.3350, 1.34, 1.3480 and 1.36.
• 1.30 is under pressure as the pair continues to lose ground. 
• 1.3110 is providing strong resistance.

Euro/dollar continues to drop following Fed minutes regarding QE – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00 German Retail Sales. Exp. +0.9%. Actual +1.2%.
• 8:15 Spanish Services PMI. Exp. 42.7 points. Actual 44.3 points.
• 8:45 Italian Services PMI. Exp. 45.1 points. Actual 45.6 points.
• 9:00 Eurozone Final Services. Exp. 47. 8 points. Actual 47.8 points.
• 10:00 Eurozone CPI Flash Estimate. Exp. +2.1%.
• 10:00  Italian Preliminary CPI. Exp. +0.2%.
• 13:30 US Non-Farm Employment Change. Exp. 150K. See how to trade this event with EUR/USD.
• 13:30 US Unemployment Rate. Exp. 7.7%.
• 13:30 US Average Hourly Earnings. Exp. +0.2%.
• 15:00 US ISM Non-Manufacturing PMI. Exp. 54.2 points.
• 15:00 US Factory Orders. Exp. +0.3%.
• 15;30 US Natural Gas Storage. Exp. -129B.
• 16:00 US Crude Oil Inventories. Exp. -0.7M.
• 20:30 US FOMC Member Janet Yellen Speaks.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• Euro slump continues: As we begin the new year, it’s been a rollercoaster ride for EUR/USD. The pair jumped after the fiscal cliff agreement was announced on Tuesday, making the most of broad dollar weakness. The euro touched 1.3299, and it looked like the greenback might continue to take a beating. However, the rally turned out to be very short-lived, and the euro has nosedived as it fast approaches the significant 1.30 line. What happened to the rally which looked so promising just a few days ago? With the fiscal cliff behind us, at least for a bit, the markets refocused on Euro-zone data, and gave a thumbs down to some soft PMI numbers out of the EZ. The release of the minutes of the December FOMC meeting also made the markets nervous, as some members called for QE4 to end in 2013. As quantitative easing is dollar-negative, the possibility of an early end to the easing is bullish for the dollar.
• Fiscal cliff deal approved: With the US about to topple over the fiscal cliff, Congress pulled out all the stops and managed to cobble together a last minute agreement to avert the crisis. Both the Senate and House of Representatives passed the deal by large margins, although there was plenty of grumbling on both sides of the political divide. Republicans and Democrats both compromised, and the highlight of the agreement is that taxes will not go up for those earning up to $450,000. The two sides could not reach agreement over spending cuts, and agreed to wage that battle another day.
• Fiscal cliff averted, for now: Following the last-minute agreement on the fiscal cliff, the markets breathed a collective sigh of relief. However, the euphoria could be short-lived, as the deal fails to deal with two critical issues – the debt ceiling and spending cuts. The debt ceiling will be reached in February, and action will have to be taken to avoid a default on the country’s debt. Republicans are expected to demand cuts in programs such as Medicare and Social Security, while the Democrats vehemently oppose any reductions in these programs, and favor raising the debt ceiling, which is what Congress agreed to in 2011. The IMF has also weighed in, saying that the fiscal agreement does not go far enough and that the US must take further action to deal with its long-term debt problem.
• US key releases send mix signals: As we start 2013, a look at recent key US releases points to a confusing picture. Employment numbers released on Thursday were mixed. Unemployment Claims shot up to 372 thousand, well above the estimate of 356K. On the other hand, ADP Non-Farm Payrolls was outstanding, jumping to 215K. This crushed the estimate of 134K. Recent housing figures were also a mixed bag, with New Home Sales down, but Pending Home Sales up sharply. Although there are clear signs that the US economy is improving, this zigzagging makes it difficult to predict how strong the recovery really is and what to expect in early 2013.
• Debt Crisis Dampens Demand for Credit: The Eurozone debt crisis has had a major impact on the continent’s banking sector. This dire situation has led to a sharp drop in the amount of bank loans to private households. Such loans dropped by 0.8% in November compared to a year ago, after a similar decline in October. The ECB is clearly worried, and blames this trend on weak confidence in the Eurozone economy and increased aversion to risk. Analysts expect credit demand to continue to be weak, and note that the ECB’s decision to cut its deposit rate to zero percent has not boosted bank lending to the private sector. On the flip side, the Eurozone M3 indicator, which measures the amount of money in circulation, jumped by 3.8% in November. This could be an indication that more inflation is on the way in 2013, which could affect interest rates and the value of the euro.

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