EUR/USD is moving upwards following sharp losses yesterday (February 4th). The euro sagged as the markets reacted to political uncertainty in Spain, with allegations of corruption against Prime Minister Mariano Rajoy. There was good economic news out of Spain on Tuesday, as Spanish Services PMI was up sharply. Italian Services PMI looked weak, failing to meet the estimate. In the US, today’s key release is ISM Non-Manufacturing PMI.
EUR/USD Technical
- Asian session: Euro/dollar lost ground dropping below the 1.35 line, and consolidating at 1.3472. The pair has rebounded in the European session, and was trading in the 1.3540 range.
- Current range: 1.3480 to 1.3588.
Further levels in both directions:Â Â 
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- Below: 1.3480, 1.34, 1.3360, 1.3290, 1.3255Â and 1.3170, 1.3130, 1.3110, 1.3030, 1.30 and 1.2960.
- Above: 1.3588, 1.3690, 1.3740, and 1.3860, 1.3915 and 1.40.
- 1.3480 is the next line on the downside.This is followed by the round number of 1.34.
- On the upside, 1.3588 is providing resistance.
Euro/dollar fluctuating on Spanish uncertainty – click on the graph to enlarge.
EUR/USD Fundamentals
- 8:15 Spanish Services PMI. Exp. 44.7 points. Actual 47.0 points.
- 8:45Â Italian Services PMI. Exp. 45.9 points. Actual 43.9 points.
- 9:00Â Eurozone Final Services PMI. Exp. 48.3 points. Actual 48.6Â points.
- 10:00Â Eurozone Retail Sales. Exp. -0.5%.
- 10:00 Italian Preliminary CPI. Exp. 0.2%.
- 13:30 US FOMC Member Elizabeth Duke Speaks.
- 15:00 US ISM Non-Manufacturing PMI. Exp. 55.2 points.
- 15:00 US IBD/TIPP Economic Optimism. Exp. 46.1 points.
For more events and lines, see the EUR/USD
EUR/USD Sentiment
- Spanish PM faces corruption accusations: Spain is back in the headlines, but for a change, it’s not about the whether the country will ask for additional rescue funds for the troubled economy. Spanish Prime Minister Mariano Rajoy is involved in a complicated corruption case, and is accused of being involved in illegal transactions. Rajoy has denied any wrongdoing and has rejected calls to resign, but his party is losing public support and the issue could become a crisis for the government, which already has its hands full trying to keep the troubled economy afloat. The government is already deeply unpopular thanks due to worsening recession and staggering unemployment levels, and this latest political crisis could further undermine investor confidence. Spanish borrowing costs rose slightly following the news, as the markets nervously monitor the latest developments out of Madrid.
- Italian banking scandal overshadows upcoming election: Italian elections are always a heated affair, and the latest twist involves a derivatives scandal at the world’s oldest bank, Monte dei Paschi. One of the largest banks in Italy, it was forced to ask for 3.9 billion euros in state aid last year due to huge losses. Former PM Silvio Berlosconi has sought to capitalize on the scandal, blaming outgoing PM Mario Monti for providing funds to the bank. Both men are candidates in the upcoming election, in what has become a tight race. The scandal could affect the election, and has also put ECB head Mario Draghi in the spotlight, since he was the head of the Bank of Italy when the trades in question were carried out.
- Eurozone employment, manufacturing data improves: Recent employment and manufacturing data out of the Eurozone are showing improvement. The highlight was the Eurozone Unemployment Rate which dipped to 11.7%, beating the forecast of 11.9%. Spanish, Italian and Eurozone Manufacturing PMIs were all slightly above the estimate, although all three remain below the 50 point threshold, indicating contraction in the manufacturing sector. The euro continues to trade at high levels after pummelling the US dollar in January. There is growing confidence in the markets that the bloc may have turned the corner and the worst is now behind us. However, many economic indicators point to ongoing weakness in the economy, and an unemployment rate close to 12% will not win any accolades. Still, there is a sense of optimism, and that sentiment can certainly be a market-mover.
- US recovery continues to limp: US economic data continues to keep the markets guessing about the extent of the US recovery. Recent key releases have not looked impressive. GDP was a major disappointment, as the economy contracted for the first time since 2009. Employment numbers lost their recent shine, as NFP and Unemployment Claims failed to meet expectations, and the unemployment rate inched up to 7.9%. On the bright side, last week’s consumer sentiment and manufacturing PMI data was very strong. consumer sentiment and manufacturing PMI data was very strong With only a handful of key US releases this week, each one will find itself under the market microscope as the markets try to get a handle on where the US economy is headed.
- Stronger German numbers boost euro: The German locomotive will have to shift into high gear if the Eurozone economy is to get back on its feet in 2013. Although German economic indicators have been mixed, market sentiment has risen after some outstanding data. ZEW Consumer Sentiment and Unemployment Claims have looked very sharp, and have helped boost the high-flying euro. The markets will be carefully monitoring German manufacturing data, which will be released later this week. As goes Germany, so does Europe, and the markets will be hoping that the positive German releases will be reflected in other Eurozone indicators as well.
