Euro/Dollar enjoyed 3 key American indicators that disappointed and made a break upwards. It now struggles with an important resistance line. Here are the reasons for this break out and the lines ahead.
EUR/USD now trades at 1.2875 after rising from the area of 1.2740. These three indicator sent the dollar down:
- Empire State Manufacturing Index: This second tier indicator score around 20 points each month, showing stable production. It even reached 31.9 points at one point. Today, it was expected to slide from 19.6 to 18.3 points. Instead, it made a plunge to 5.1 points, the lowest score in 7 months, and quite close to a negative score, meaning worsening economic conditions.
- PPI: Producer prices were released at the same time. Being a key factor for inflation and a future rise in interest rates, PPI fell by 0.5%, much more than expected. With prices dropping, interest rates will remain low, and this weakens the dollar.
- Philly Fed Manufacturing Index: This manufacturing indicator is more important than the first one, and it was published at 14:00 GMT. It fell last month to 8 points and hurt the dollar badly. It was now expected to rise to 10, but it score only half – 5.1 points – the same weak score as the Empire State index.
The dollar could cling to one positive figure – weekly jobless claims finally made a significant drop below 430K. But the figure, 429K, was dismissed by the markets due to one time changes in hiring temporary workers at factories. The seasonal adjustments went wrong, and economists said that number will “get back to normal†only in a few weeks time.
Dollar Drops Across the Board
The dollar lost ground across the board. The risk factor didn’t play a role – we saw the “safe haven†Japanese yen gain together with the more vulnerable,more risky European currencies, as well as the commodity currencies.
The Euro took a breather after making nice rises, and now it got a new boost.
At the vicinity of 1.2880, EUR/USD is now at a resistance line marked by a support line that was set back in 2009. If this line is broken, the next level of resistance is the round number of 1.30.
The next line of resistance is more important: 1.3110 was a strong support line back in May. When the European debt issues accelerated, this line was broken and a recovery of the Euro met resistance at that point. So, this is an important line. Even higher, 1.3267 serves as the next line of resistance.
Looking down, a drop of the pair will find support at 1.2670, followed by 12520 and 1.2460. The Euro enjoys American weakness and not its own strength. The problems in Europe are far from over, with Portugal receiving a fresh credit downgrade.
The big test for the Euro is next Friday, July 23rd, when the bank stress tests will be released. This is a key event in the never ending debt issues that hurt the common currency.
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