EUR/USD May 9 – Higher After Solid German Manufacturing

There was only one Eurozone release on Wednesday, but EUR/USD took full advantage of a sharp German Industrial Production reading, which hit a ten-month high. The euro responded by gaining close to a cent, and was trading in the mid-1.31 in Thursday’s European session. The markets are closed in Germany and France for a holiday, and the lone Eurozone release is the ECB Monthly Report. It’s been a quiet week in the US, and today’s Unemployment Claims is the only key event this week.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• Asian session: Euro/dollar was steady, touching a high of 1.3168 and consolidating at 1.3156. The pair has edged higher in the European session.
• Current range: 1.31 to 1.3160.

Further levels in both directions: 

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• Below: 1.3160, 1.31, 1.3030, 1.3000, 1.2960, 1.2880, 1.2805, 1.2750 and 1.27.
• Above: 1.32, 1.3255, 1.3290, 1.3350 and 1.34.
• 1.32 is providing weak resistance. 1.3255 is stronger.
• On the downside, 1.3160 is now providing weak support. This is followed by 1.3130.

Euro jumps after strong German numbers – click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 ECB Monthly Bulletin.
• 12:30 US Unemployment Claims. Exp. 333K. See how to trade this event with USD/JPY.
• 14:00 US Wholesale Inventories. Exp. 0.3%.
• 14:30 US Natural Gas Storage. Exp. 80B.
• 17:00 US 30-year Bond Auction.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• German Manufacturing Numbers Continue to Impress: German manufacturing data was on the right track this week, as Factory Orders jumped 2.2%, easily beating the estimate of -0.4%. On Thursday, there was more good news as Industrial Production climbed 1.2%, its best level since September. The markets were again way off the mark, as the estimate called for a -0.1% decline. The euro responded by climbing close to one cent. Germany’s economy will have to strengthen if the Eurozone is to get back on its feet, and these releases are certainly a step in the right direction.
• ECB open to further rate cuts: When the ECB cut rates last week to 0.50%, the euro initially move higher, but then dropped after ECB head Mario Draghi stated that the ECB would consider negative deposit rates. The reason? Such a move could lead to a flow of funds outside the Eurozone in search of better rates. On Monday, Draghi stated that ECB was open to lowering rates further, as well as cutting its deposit rates below zero. This time, talk of negative rates did not spook the markets, and the euro remained steady.
• Letta wants to see growth, not austerity: New Italian Prime Minister Enrico Letta is on a European tour, and has called for an end to strict austerity. Letta wants to see the Eurozone leaders concentrate on renewing growth, rather than simply implementing more austerity measures. He received an enthusiastic welcome in Paris from French President Francois Hollande, whose popularity has plummeted due to his government’s austerity measures. Letta’s remarks were not received as warmly when he visited Berlin, as Germany is tired of bailing out other zone members and is a strong proponent of fiscal consolidation. We can expect some lively exchanges at future Eurozone summits regarding how to breathe life into the Eurozone’s ailing economy.
• Greece gets good report card from IMF: The IMF released a report this week which commended Greece for its efforts to reduce crippling deficits, noting ”exceptional progress” in the past four years. The IMF also said that Greece had increased competitiveness and kept the financial sector stable. At the same time, the IMF noted that the country has failed to tackle tax evasion or cut the bloated public sector, and these factors had contributed to a deep recession. We are no longer hearing whispers of a Greek exit from the Eurozone, but the country may still need the helping hands of the IMF and the ECB until the economy shows further improvement.
•  Spanish employment picture brightens: Spanish releases started the week started in fine fashion, as Unemployment Change dropped by 46.1 thousand. This surprised the markets, which had expected a rise of 17.1 thousand. Prime Minister Mariano Rajoy has stated that he expects the unemployment rate, currently at a record 27%, to start dropping in 2014 as the economy improves. Rajoy has implemented tough austerity measures, and further solid numbers out of Spain would be a strong indication that the austerity program is bearing fruit.

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