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6 Jun 2013
Economic data set to heighten volatility in EUR/USD
FXstreet.com (Barcelona) - The EUR/USD traded in narrow range for a second day in a row, climbing as high as 1.3114 at one point but edging lower at the end of the day to close up 10 pips at 1.3092. Some analysts were pointing towards the weaker the ADP jobs release, as well at the Non-Manufacturing ISM Data as a catalysts which maybe have supported the strength in the pair. Given the fact we will see the ECB Rate Decision tomorrow, followed by the Non Farm Payroll figures Friday, market participants should expect heightened volatility throughout the rest of the week.
According to Sean Callow at Westpac, “Checking the data details, the US ADP private sector employment survey rose 135K in May (median 135K) and April was also revised down to 113K (from 119K), widening the gap with the official payrolls measure. The US non-manufacturing ISM was slightly better than expected in June, rising to 53.7 from 53.1 in May. However it remains below levels seen in the first three months of the year. And the (separately surveyed) components all softened, including the employment index, which fell for a fourth month in a row, to 50.1.
Other analysts point to the recent improvement in certain economic data out of Europe since the last ECB meeting. Furthermore, there have also been positive technical developments on the charts which may be another reason to expect further upside in coming sessions.
"The euro is prime for a breakout. Unlike other major currency pairs, EUR/USD traded in a relatively tight range throughout the European and North American sessions. On a technical basis, the currency pair stayed between the 100 and 200-day SMAs for the past 48 hours, which reflects the hesitation of investors who are waiting for a catalyst to take the currency pair out of its range. Tomorrow could be the perfect opportunity for a breakout in the pair with the European Central Bank scheduled to deliver its monetary policy decision. The ECB is widely expected to leave interest rates unchanged leaving Mario Draghi's press conference as the primary focus for FX traders," noted Kathy Lien of BK Asset Management.
Lien went on to comment, “Since the last monetary policy meeting, we have seen both improvements and deterioration in Eurozone data. There were no revisions to PMI services today but Eurozone retail sales dropped more than expected. Up until this weekend when ECB President Draghi noted "few signs of possible stabilization" in the Eurozone and said he expects a "very gradual recovery" later this year, the head of the central bank seemed to be a larger advocate for negative rates. This contrasts with some of the skepticism on the effectiveness of negative rates expressed by Nowotny, Mersch, Asmussen and Noyer, all members of the Governing Council”
On the flip side, other analysts are still viewing the longer term trend of the EUR/USD as down, and expect to see weakness in the coming sessions as we approach the ECB Rate Decision. Furthermore, they note it will be important to keep an eye on the comments from President Draghi, particularly should he continue to mention anything regarding the possibility of negative interest rates.
"Indeed, the European Central Bank interest rate decision highlights the biggest event risk for the next 24-hours of trading, and the fresh batch of central bank rhetoric may dampen the appeal of the single currency should the Governing Council carry its easing cycle into the following year ,” noted David Song, Currency Analyst at DailyFX.
Song went on to add, “Although the ECB is widely expected to keep the benchmark interest rate at 0.50%, we may see a growing discussion for a negative interest-rate policy (NIRP) amid the persistent slack in the real economy, while President Mario Draghi may show a greater willingness to purchase Asset-Backed Securities (ABS) in order to encourage private sector lending. In turn, the head-and-shoulders pattern in the EURUSD may continue to take shape during June, and we will maintain a bearish outlook for the Euro as the region struggles to emerge from the recession.”
From a technical perspective, there are some note-able improvements which have developed over the past week which market participants should be aware of as we head into the next few days. Short term moving averages are now in bullish set up on the daily chart, with price above both upward sloping 9 and 20 dma’s This is further evidenced by by applying the ADX (7) to the daily chart which is now sitting at the sloping upward with a value above 31 (sign of trend development). Initial resistance comes in at 1.3114 (previous day high), followed by 1.3200 (upper end of range). First support sits at 1.3053 (previous day low), followed by 1.3012 (the 9dma)
According to Sean Callow at Westpac, “Checking the data details, the US ADP private sector employment survey rose 135K in May (median 135K) and April was also revised down to 113K (from 119K), widening the gap with the official payrolls measure. The US non-manufacturing ISM was slightly better than expected in June, rising to 53.7 from 53.1 in May. However it remains below levels seen in the first three months of the year. And the (separately surveyed) components all softened, including the employment index, which fell for a fourth month in a row, to 50.1.
Other analysts point to the recent improvement in certain economic data out of Europe since the last ECB meeting. Furthermore, there have also been positive technical developments on the charts which may be another reason to expect further upside in coming sessions.
"The euro is prime for a breakout. Unlike other major currency pairs, EUR/USD traded in a relatively tight range throughout the European and North American sessions. On a technical basis, the currency pair stayed between the 100 and 200-day SMAs for the past 48 hours, which reflects the hesitation of investors who are waiting for a catalyst to take the currency pair out of its range. Tomorrow could be the perfect opportunity for a breakout in the pair with the European Central Bank scheduled to deliver its monetary policy decision. The ECB is widely expected to leave interest rates unchanged leaving Mario Draghi's press conference as the primary focus for FX traders," noted Kathy Lien of BK Asset Management.
Lien went on to comment, “Since the last monetary policy meeting, we have seen both improvements and deterioration in Eurozone data. There were no revisions to PMI services today but Eurozone retail sales dropped more than expected. Up until this weekend when ECB President Draghi noted "few signs of possible stabilization" in the Eurozone and said he expects a "very gradual recovery" later this year, the head of the central bank seemed to be a larger advocate for negative rates. This contrasts with some of the skepticism on the effectiveness of negative rates expressed by Nowotny, Mersch, Asmussen and Noyer, all members of the Governing Council”
On the flip side, other analysts are still viewing the longer term trend of the EUR/USD as down, and expect to see weakness in the coming sessions as we approach the ECB Rate Decision. Furthermore, they note it will be important to keep an eye on the comments from President Draghi, particularly should he continue to mention anything regarding the possibility of negative interest rates.
"Indeed, the European Central Bank interest rate decision highlights the biggest event risk for the next 24-hours of trading, and the fresh batch of central bank rhetoric may dampen the appeal of the single currency should the Governing Council carry its easing cycle into the following year ,” noted David Song, Currency Analyst at DailyFX.
Song went on to add, “Although the ECB is widely expected to keep the benchmark interest rate at 0.50%, we may see a growing discussion for a negative interest-rate policy (NIRP) amid the persistent slack in the real economy, while President Mario Draghi may show a greater willingness to purchase Asset-Backed Securities (ABS) in order to encourage private sector lending. In turn, the head-and-shoulders pattern in the EURUSD may continue to take shape during June, and we will maintain a bearish outlook for the Euro as the region struggles to emerge from the recession.”
From a technical perspective, there are some note-able improvements which have developed over the past week which market participants should be aware of as we head into the next few days. Short term moving averages are now in bullish set up on the daily chart, with price above both upward sloping 9 and 20 dma’s This is further evidenced by by applying the ADX (7) to the daily chart which is now sitting at the sloping upward with a value above 31 (sign of trend development). Initial resistance comes in at 1.3114 (previous day high), followed by 1.3200 (upper end of range). First support sits at 1.3053 (previous day low), followed by 1.3012 (the 9dma)