EUR/USD is showing little movement on Monday, as the pair trades at the 1.25 line in the European session. On the release front, Eurozone and Spanish Manufacturing PMI were very close to the forecast. The Italian reading softened and pointed to contraction. In the US, today’s highlight is ISM Manufacturing PMI. The markets are expecting little change in the upcoming release, with an estimate of 56.5 points.
It was a rough week for German releases, as the Eurozone’s largest economy continues to struggle. On Friday, Retail Sales were dismal, plunging by 3.5%. This marked the sharpest decline since October 2007. The markets had expected a decline of 0.8%. Consumer Climate and CPI softened in September, although Unemployment Change was better than expected. The euro is sensitive to German data, and the struggling currency will have difficulty holding its own against the US dollar if German numbers don’t show improvement.
It was another solid performance from US GDP on Thursday, which posted a strong gain of 3.5% in Q3, higher than the estimate of 3.1%. Although this was short of the Q2 reading of 4.0%, the two readings mark the strongest six-month gain we’ve seen in 10 years. Unemployment Claims increased slightly to 287 thousand, slightly higher than the previous reading of 284 thousand. However, the four-week average remains at multi-year lows, pointing to an improving labor market.
The US dollar posted strong gains on Wednesday, boosted by a hawkish Fed policy statement. The Fed said that the labor market is strengthening and inflation remains on target, although it did note that the labor market participation rate remains low. As expected, the Fed completed the taper of its QE3 program, an expected but still symbolic move. The asset-purchase program was initially started in 2008, at the height of the economic crisis, in order to boost a weak US economy and maintain interest rates at ultra-low levels. The termination of the QE is a symbolic step which is a vote of confidence from the powerful Fed that the US economy is on the right track.
EUR/USD 1.2494 H: 1.2511 L: 1.2541
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