The week was pretty busy for the euro with investors preparing for the ECB meeting on Thursday. The new month started with a modest move on the upside in the Monday session with the common currency remaining between 1.255 and 1.26 all day long. Even the Italian manufacturing PMI number was not able to stir the market. According to Markit the manufacturing sector in Italy continued to contract for a twelfth consecutive month. To make the matters worse, the contraction was much more severe than what analysts were expecting. Economists were projecting a reading of 44.9, but instead we locked the worst reading since November 2011 – 43.6. On Tuesday, the biggest news came from Spain, where the labor market showed signs of weakness once again. After four months, in which the number of unemployed declined, in August another 38.2K people left the market. The euro rose on the news as investors started speculating that the report will prompt the ECB to use additional measures to spark the growth in the Eurozone. The common currency finished the day at 1.2614 after touching highs of 1.2628 earlier on. The bulls had some troubles with the 1.26 level, but the resistance at this key level was not very strong and was quickly broken. On Wednesday, however, the bears regained their strength and sent the euro on a downward spiral. The common currency erased all the gains it had posted earlier in the week, pushing below both its 25-period and its 50-period moving averages. In terms of economic events the day was rather quiet with the retail sales in the Eurozone coming in line with expectations. According to Eurostat the change in the total value of inflation-adjusted sales at the retail level declined by 0.2% in July after rising by 0.1% in the previous relevant period. Germany’s 10-year bond auction was also closely monitored by market participants. The largest economy in the Eurozone sold the new issue at a yield of 1.42% and a bid-to-cover ratio of 1.1. As we mentioned above the market participants sold the EURUSD on the news as the low demand of the German bonds indicated that traders are moving to riskier assets, which in term sparked talks among traders that the ECB might choose to refrain from further easing measures. Today all eyes were focused on the ECB meeting with optimism for the announcement of explicit bond-buying returning to the market. Investors jumped to buy the euro, sending it back above its 25-period and its 50-period moving averages. The EURUSD even pushed above 1.26 before the results of the ECB meeting were released.

The European Central Bank decided to leave its benchmark interest rate at its current level of 0.75%, but the public was more interested in the future plans for open market operations. In his speech Mario Draghi once again committed at preserving the integrity of the Eurozone, but the most important item in his announcement was the new program, called “Monetary Outright Transactions”, which will be focused on the secondary sovereign bond market. Within the program bonds will be bought with maturities up to three years and the purchases will be sterilized. After the press conference the EURUSD dropped sharply, but after the market had some time to assimilate the news the common currency pared its losses and even marked a fresh new high for the period after July 2nd. The euro touched highs of 1.265 before retracting to its current rate of 1.2635. Tomorrow more news are coming from Europe, which could potentially affect the EURUSD. We have the German industrial production being released at 10:00 GMT, but the most important numbers are coming from the other side of the ocean, where the non-farm employment change is released.


Technically speaking, resistance seems to be forming at the 1.265 level, while support stands at the psychologically-important 1.26 level. Oscillators are trending higher with the relative strength index at 65 and the stochastic already in overbought territory, standing at 88. The MACD is above the key 0 level, issuing buy signals, but fundamentals are likely to continue to move the market at least in the near future.

Source: binaryoption