EUR/USD Oct. 3 – Edges Up as Markets Await US Data

EUR/USD edged upwards, pushing slightly above the 1.29 line. The uncertainty continues as to whether Spain will request a bailout, although Spanish PM Mariano Rajoy dismissed a media report that Spain would ask for help this weekend. In economic news, Euro-zone Retail Sales came in above the forecast, and the markets will be keeping a close eye on two key releases in the US later today – ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI.

Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.

EUR/USD Technical

• Asian session: Euro/dollar tested 1.29. The pair has edged upwards in the European session.
• Current range: 1.2900 to 1.2960.

Further levels in both directions:  

• Below: 1.2900, 1.2814, 1.2750, 1.2670, 1.2624, 1.2587, 1.2520 and 1.2460.
• Above: 1.2960, 1.30, 1.3060, 1.3105, 1.32, 1.3290, 1.34, 1.3437, 1.3480 and 1.3540.
• 1.29 continues to be tested, and is currently providing weak support.
• 1.2960 is the next resistance line.

Euro/Dollar has moved slightly above 1.29 – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:15 Spanish Services PMI. Actual 40.2 points.
• 7:45 Italian Services PMI. Actual 44.5 points. Exp. 43.6 points.
• 8:00 Euro-zone Final Services PMI. Actual 46.1 points. Exp. 46.0 points.
• 9:00 Euro-zone Retail Sales. Actual +0.1%. Exp. -0.1%.
• 12:15 US ADP Non-Farm Employment Change. Exp. 145K.
• 14:00 US ISM Non-Manufacturing PMI. Exp. 53.2 points. See how to trade this event with USD/JPY.
• 14:30 US Crude Oil Inventories. Exp. 1.6M.

EUR/USD Sentiment

• Guessing game over Spanish bailout continues: After unveiling its austerity budget, the Spanish government continues to keep the markets guessing about a bailout request from the ECB. Spanish Prime Minister Mariano Rajoy dismissed media reports that the government might ask for a bailout as early as this weekend. However, other zone members are far from happy about a Spanish aid package. Germany has stated its unease about yet another bailout, and finance ministers from Germany, the Netherlands and Finland declared that bank supervision and bank bailout would only come for new banking problems and not for legacy ones. Thus, the agreements in the June 2012 EU Summit regarding a banking bailout for Spain seem null and void. Breaking the link between sovereigns and banks was a key value less than 3 months ago, and now it is gone. However, many analysts believe the bailout request is just a matter of time, given that Spain has one of the largest public deficits in the zone, and the country is mired into its second recession in just three years. Spanish Services PMI dropped sharply in August, and more gloomy economic data is likely on the way.
• Pro-independence fever grips Spanish regions: As if Spain doesn’t have enough troubles to deal with, the independence movement in Catalonia is pushing forward, fast. After setting a date for elections (Nov. 25th), the northeastern region of Spain passed a motion for independence. This was met with anger by the central government and raised bad memories from the past. With the economic situation deteriorating, both sides find it hard to find a compromise. And now, also the Basque Country sees more calls for independence, despite enjoying a more favorable economic model.
• Euro-zone likely in recession: Persistently weak employment and PMI data out of the Euro-zone has convinced many analysts that the Euro-zone was in a recession in Q3. Unemployment rates in Greece and Spain are practically off the charts, and the Euro-zone hit a record 11.4% earlier this week. PMIs throughout the zone are mostly below the 50.0 point level, indicating contraction in many, if not most, of sectors of the economy. With no sign of improvement on the horizon, speculation is increasing that the ECB’s bond-buying plan will no be enough, and the central bank might slash interest rates to a record low of 0.5% before the end of the year.
• Greece seeks more time for repayments: Germany’s opposition leader and former finance minister called for giving more time to Greece. Will this impact Greece’s creditors? With the troika showing some flexibility over Greek repayments, there is hope for some good news, which will later require the approval of coalition partners.  Talks about a third bailout program became more loud in recent days, as Greece is nowhere close to meeting targets. There are news reports out of Greece that the sides are further apart than they are saying publicly, and that the IMF is unhappy providing more funds to Greece at this point in time. A meeting of European finance ministers is set for October 8th, and could be seen as a deadline to accelerate the talks. Meanwhile, Greece released a draft budget for 2013, and the economic picture is anything but rosy. The economy is expected to shrink by 3.8%, and unemployment is forecast to remain above 24%.
• US Economy – Direction Unknown: The downwards revision of Q2 GDP was quite depressing and showed that the US economy is at stall speed. However, improvement from housing and a surprising drop in jobless claims are positive points. The PMIs and ADP’s report build up the expectations towards the all important Non-Farm Payrolls on Friday.

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