EUR/USD surged higher on Tuesday, gaining about one cent following a disappointing Non-Farm Payrolls report. The key employment indicator was nowhere near the estimate and slid to a six-month low. EUR/USD has edged lower on Wednesday, and is trading in the mid-1.37 range in the European session, close to two-year high. In economic news, Wednesday has a light schedule, with no major releases out of Europe or the US.
There was plenty of anticipation leading up to the release of US Non-Farm Payrolls on Tuesday, as the key indicator had been postponed from early October due to the government shutdown. However, the markets were in for a big disappointment, as NFP slipped to 148 thousand in September, compared to 169 thousand in August. This was a six-month low, and well off the estimate of 182 thousand. The US unemployment rate dipped to 7.2%, a five-year low, but this does not point to increased employment, as the participation rate remained at 63.8%, its lowest level since 1978. These figures indicate that the US labor market continues to have difficulty creating new jobs. The US dollar was broadly lower following the weak NFP reading, and the euro gained about one cent against the dollar.
Inflation in the Eurozone continues to be low, as underscored by weak German and Eurozone inflation data last week. The ECB has stated that its inflation target is “close to, but below 2%”, but Eurozone CPI releases continue to fall short of this target and the September release came in at 1.1%. The ECB is reluctant to lower interest rates in order to boost inflation, so it seems low inflation will remain until economic growth picks up.
There was some optimism and relief last week, as the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling, following weeks of fighting in Congress. However, the deal provides short-term relief only - the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides have agreed to discuss budget issues and try to reach a long-term agreement before December 13. So we could be right back where we started in just a few months. At the same time, the public is angry at lawmakers for creating the crisis, and with congressional elections only a year away, the politicians on Capitol Hill may think twice before plunging the country into
another fiscal and political crisis.
The US government is again functioning and a default has been averted, but the agreement hammered out in Congress last week provides short-term relief only, as it raises the debt ceiling until early February and funds the government until mid-January. The underlying budgetary issues remain unresolved, consumer confidence has been shaken and employment numbers are not looking good. Given this situation, the Fed is unlikely to push the taper trigger until early 2014, perhaps not before March or April.
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EUR/USD October 23 at 10:45 GMT
EUR/USD 1.3750 H: 1.3793 L: 1.3744
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- EUR/USD has edged lower in Wednesday trading, as the pair trades in the mid-1.37 range.
- The pair continues to face resistance at 1.3786. This line has weakened following the euro's surge on Tuesday. This is followed by stronger resistance at 1.3893, which has held firm since October 2011.
- EUR/USD is receiving support at 1.3649. This is followed by a support level at 1.3585.
- Current range: 1.3649 to 1.3786
Further levels in both directions:
- Below: 1.3649, 1.3585, 1.3500, 1.3410 and 1.3335
- Above: 1.3786, 1.3893, 1.4000 and 1.4143
OANDA's Open Positions Ratio
EUR/USD ratio has reversed directions and is showing movement towards short positions on Wednesday. This is consistent with the movement of the pair, as the euro has edged lower. The ratio continues to be dominated by short positions, indicating a strong trader bias towards the US dollar posting additional gains against the euro.
EUR/USD has settled down after strong gains following the weak Non-Farm Payrolls release. With no major events on the calendar, the pair could have a quiet Wednesday.
EUR/USD Fundamentals
- Tentative – German 30-year Bond.
- 12:30 US Import Prices. Estimate 0.3%.
- 13:00 Belgian NBB Business Climate. Estimate -4.1 points.
- 13:00 US HPI. Estimate 0.8%.
- 14:00 Eurozone Consumer Confidence. Estimate -14 points.
- 14:30 US Crude Oil Inventories. Estimate 2.7M.