EUR/USD: Little Change As Markets Eye ADP Non-Farm Payrolls

 | Dec 04, 2013 06:54AM ET

The euro is steady in Wednesday trading, as EUR/USD trades just shy of the 1.36 line. In economic news, Spanish Services PMI pushed above the 50-point level in November. However, Italian Services PMI sagged, dropping to a five-month low. Eurozone Retail Sales was a disappointment, posting a second straight decline. After a slow start to the week, there’s plenty of action out of the US on Wednesday, with four key events – ADP Non-Farm Employment Change, Trade Balance, ISM Non-Manufacturing PMI and Home Sales.

Spanish Services PMI looked sharp in November, as the index climbed to 51.5 points, up from 49.6 the month before. This was the PMI’s highest level in over six years. Italian Services PMI took the opposite route, dropping to 47.2 points, compared to 50.5 in the previous reading. The Eurozone Manufacturing PMI remained steady, coming in at a healthy 51.6 points. PMI data is an important gauge of economic activity and can affect the movement of EUR/USD. Meanwhile, for the first time in the month of November, Spanish unemployment claims declined. The key indicator posted a decline of 2.5 thousand, surprising the markets, which had forecast a gain of 49.3 thousand. This was the first drop since July. Traditionally, the summer months show a decline due to the influx of tourists, so the November release was a pleasant surprise. Now the big question is whether the unemployment rate, which stands at a staggering 26%, will follow suit and show some improvement.

With inflation and growth remaining weak in the Eurozone, the ECB may make a monetary move later this week. It could opt to cut the benchmark rate for a second straight month, or lower the deposit rate, which currently stands at 0.0%. However, a move into negative territory would represent unchartered territory and could have negative consequences for the economy. If the ECB decides to reduce the deposit rate, we could see a "mini cut" of less than 0.25%. The markets are expecting the Bank to hold the current benchmark rate of 0.25%, but just last month the markets were caught by surprise as the ECB cut the rate from 0.50%.

In the US, the markets will be keeping a close eye on this week’s employment releases, stating with the ADP Non-Farm Payrolls later on Wednesday. If US employment numbers continue to improve, the Federal Reserve is likely to take action and taper QE early next year. Unemployment Claims have looked sharp for the past two releases, and if the Non-Farm Payrolls and Unemployment Rate look solid this week, the US dollar could gain ground against the euro.