EUR/USD Jan 24 – Volatile after Mixed PMI Data

EUR/USD is showing strong volatility after a large number of releases early on Thursday, including PMI data. The markets were pleased with the solid PMIs out of Germany and the Eurozone. However, French PMIs were a disappointment. Eurozone Current Account looked very sharp, posting its largest surplus in over six years. In the US, the markets will be hoping for another strong reading from today’s highlight, Unemployment Claims.

EUR/USD Technical

• Asian session: Euro/dollar was steady, consolidating at 1.3332. The pair continues to trade in this range in the European session.
• Current range: 1.3290 to 1.3360.

Further levels in both directions: 

• Below: 1.3290, 1.3255, 1.3170, 1.3130, 1.3110, 1,3030, 1.30, 1.2960, 1.28, 1.2750, 1.2690, 1.2624 and 1.2590.
• Above: 1.3360, 1.34, 1.3480, 1.36, 1.3750 and 1.3838.
• 1.3290 continues to provide support, and was tested earlier on Thursday. 1.3255 is stronger.
• On the upside, 1.3360 is the next line of resistance.

Euro/dollar volatile following release of Euro PMIs  – click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 French Flash Manufacturing PMI. Exp. 44.9 points. Actual 42.9 points.
• 8:00 French Flash Services PMI. Exp. 45.6 points. Actual 43.6 points.
• 8:00 Spanish Unemployment Rate. Exp. 25.9%. Actual 26.0%.
• 8:30 German Flash Manufacturing PMI. Exp. 47.1 points. Actual 48.8 points.
• 8:30 German Flash Services PMI. Exp. 52.0 points. Actual 55.3 points.
• 9:00 Eurozone Current Account. Exp. 6.5B. Actual 14.8B.
• 9:00 Eurozone Flash Manufacturing PMI. Exp. 46.6 points. Actual 47.5 points.
• 9:00 Eurozone Flash Services PMI. Exp. 48.1 points. Actual 48.3 points.
• 9:00 Italian Retail Sales. Exp. 0.2%. Actual -0.4%.
• 13:30 US Unemployment Claims. Exp. 359K.
• 14:00 Belgium NBB Business Climate. Exp. -10.9 points.
• 14:00 US Flash Manufacturing PMI. Exp. 53.2 points.
• 15:00 US CB Leading Index. Exp. 0.4%.
• 15:30 US Natural Gas Storage.
• 16:00 US Crude Oil Inventories. Exp. 2.8M.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• Euro jumpy as PMIs paint mixed picture: The euro sprang into action as a host of PMI data was released earlier on Thursday. German PMIs were excellent, as both Services and Manufacturing PMIs easily beat the market forecast. Eurozone Manufacturing PMI had its best showing since March, while Services PMI came in just above the estimate. The news was less positive from France, as both Services and Manufacturing PMIs lost ground, and were well below the market estimates. There was some good news from an unlikely source, as Eurozone Trade Balance hit 14.8 billion euros, easily beating the forecast of 6.5 billion euros. The euro is fluctuating in Thursday’s European session, as the markets digest the divergent releases.
• German Numbers Improve: After some weak releases earlier in January, this week’s German economic data has been encouraging. ZEW Economic Sentiment soared to its highest level since May 2010, and Thursday’s PMIs were sharp. Manufacturing PMI climbed to 48.8 points, its best showing since February. Services PMI looked even better, climbing to 55.3 points. This was its highest level since May 2011. The solid readings will be welcome news, as hopes rise that the Eurozone’s largest economy is improving. In order for the Eurozone to get back on its feet, it is critical for the German locomotive to get back on track.
• Greece receives more bailout funds: At a meeting on Monday in Brussels, the Eurogroup of Eurozone Finance Ministers approved the next installment of bailout funds for Greece, in the amount of 9.2 billion euros. This tranche is made up of EUR 7.2 billion in bonds, to recapitalize Greek banks, and EUR 2 billion in cash for government expenses. The decision boosted market sentiment, as the move was seen as a vote of confidence by the ECB in the ability of Greece to carry on with its economic restructuring program.
• Eurogroup looks to aid banks directly: The Eurogroup has commenced discussions on how to best utilize the European Stability Mechanism, the Eurozone’s emergency bailout fund. The Eurogroup is taking a close look at direct bank recapitalization, whereby banks would borrow directly from the ESM. This is intended to replace the process whereby governments simply borrow more funds to bolster their ailing banks. As with most major issues affecting the Eurozone, there are deep divisions on this issue. The front-line members who are being touted for further aid include Spain, Cyprus and Greece.
• US data continues to zig-zag: Trying to gauge the extent of the US economic recovery is no simple task, especially when US releases point in all directions. Last week’s unemployment claims were outstanding, and retail sales looked sharp. This was offset by weak manufacturing and consumer sentiment data. As well, the most recent housing numbers fell below the estimate. With the US economy sending mixed signals, the uncertainty is likely to be reflected in the currency markets.
• Congress prepares for budget talks: In Washington, there was a new development in budget negotiations, which have been stalled due to sharp disagreements between the Republicans and Democrats. The Republicans have announced that they will table a proposal in Congress which would extend the debt ceiling until April 15. This would allow the U.S. government to borrow enough money to keep it fully operating for the next three months until the sides can reach an agreement. The two sides took a short breather to celebrate President Obama’s inauguration on Monday. With the parties far apart on the issue of spending cuts and how to deal with the staggering US debt, we can expect more fireworks on Capitol Hill before the spring thaw.

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