EUR/USD Jan. 3 2014 – Euro Downward Spiral Continues

EUR/USD has started 2014 with a slide and has broken below long term downtrend support. The pair shed one cent on Thursday and the downward trend continues on Friday, with EUR/USD trading in the mid-1.36 range. Economic releases started the year on the right foot, as European Manufacturing PMIs pointed to expansion in Spain, Italy, and the Eurozone. In the US, Unemployment Claims and ISM Manufacturing PMI met market expectations. On Friday, Spanish Unemployment Claims sparkled, dropping by over 100 thousand. In the US, a host of FOMC members will be speaking, including outgoing Fed chairman Bernard Bernanke.

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

EUR/USD Technical

• EUR/USD was steady in the Asian session and touched a high of 1.3674. The pair consolidated at 1.3651. EUR/USD has edged lower in the European session.

Current range: 1.3615 to 1.3675.

Further levels in both directions: 

• Below:  1.3615, 1.3525, 1.3440, 1.34, 1.3320, 1.3240, 1.3175 and 1.31.
• Above: 1.3675, 1.3710, 1.3800, 1.3832, 1.3940 and 1.4036.
• 1.3675 has reverted to a resistance role. 1.3710 follows.
• 1.3615 is providing weak support.

EUR/USD Fundamentals

• 8:00 Spanish Unemployment Change. Exp. 24.3K, actual -107.6K.
• 9:00 Eurozone M3 Money Supply. Exp. 1.5%, actual 1.5%.
• 9:00 Eurozone Private Loans. Exp. -1.9%, actual -2.3%.
• 10:00 Italian Preliminary CPI. Exp. 0.3%. Actual 0.2%.
• 15:30 US Natural Gas Storage. Exp. -125B.
• 16:00 US Crude Oil Inventories. Exp. -2.3M.
• All Day – US Total Vehicle Sales. Exp. 16.0M.
• 17:45 US FOMC Member Charles Plosser Speaks.
• 18:15 US FOMC Member Jeremy Stein Speaks.
• 19:30 US Fed Chairman Bernard Bernanke Speaks.

For more events and lines, see the Euro to dollar forecast.

EUR/USD Sentiment

• Spanish unemployment claims tumble: It’s been a great start to 2014 for Spanish releases. On Friday, Unemployment Change sparkled, dropping by 107.6 thousand, crushing the estimate of 24.3 thousand. This was the best reading ever in the month of December. Earlier in the week, Manufacturing PMI crossed above the 50-point level, indicating expansion. We’ll see if Spanish Services PMI keeps pace with some good news when it’s released early next week.
• Unemployment Claims Unchanged: Unemployment Claims were almost identical to the previous week, coming in at 339 thousand. This was slightly above the estimate of 334 thousand.  The markets will be keeping an eye on the year’s first Non-Farm Payrolls, which will be released next week. The NFP can impact the next Fed decision, after 2013 ended with QE tapering. While it was small, the Fed did indeed change policy, and this could have a significant positive impact on the US dollar.
• Flows now turning against the euro: The flows towards the end of 2013 went in favor of the euro and against the dollar. But as the excess liquidity needs to find a way, the flows are now changing direction and the euro has dropped sharply since January 1. We will probably see stability only next week, when the winter vacation is really over.
• Euro gets a new member: Latvia joined the Eurozone on January 1, becoming the 18th member of the bloc. With a population of just two million, Latvia will be one of the smallest economies in the Eurozone. Although many Latvians are not enthusiastic about adopting the continental currency, there were immediate benefits to the move, as the S&P and Fitch ratings agencies raised the country’s credit rating. There are now some 333 million people are now using the euro.
• Dollar bullishness in 2014?: Many analysts see the dollar strengthening in 2014, but the euro is certainly expected to give a fight. Here is one outlook: 2014 – Conditional Dollar Strength.