EUR/USD: Steady As Spanish Employment Data Sparkles

 | Apr 02, 2014 05:41AM ET

EUR/USD is showing little movement on Wednesday, as the pair trades just shy of the 1.38 line in the European session. In economic news, Spanish Unemployment Change dipped to a three-month low and easily beat the estimate. Today's highlight is the ADP Nonfarm Payrolls, the first US employment release of the week.

Spanish Unemployment Change is notorious for its sharp fluctuations, resulting in market forecasts that are often well off the mark. The February release was no exception, as the reading of -16.6 thousand was much better than the estimate of -5.3 thousand. The indicator has rolled off four declines in the past five releases, which points to some improvement in the Spanish economy. Spanish Manufacturing PMI met expectations on Monday, and we'll get a look at Services PMI on Thursday.

Earlier in the week, Fed chair Janet Yellen said that inflation and employment levels needed to improve considerably, and the Federal Reserve would continue to provide monetary stimulus for some time. Currently, the Fed is purchasing $55 billion in assets under its QE scheme. There have been three tapers to QE so far, and Yellen plans to wind up the program in the fall, provided that the US economy does not run into any serious turbulence. At the same time, the Federal Reserve has stated that it has no plans to raise interest rates until sometime in 2015.

With the Eurozone weighed down by with persistently low inflation and the euro continuing to trade at high levels, the ECB has been looking for ways to improve matters, and has openly discussed implementing QE or negative deposit rates. Last week, German Bundesbank head Jens Weidmann gave support to negative deposit rates in order to respond to the strong euro. He also raised the possibility of a QE scheme for the ECB, whereby the central bank would purchase loans or other assets in order to fight deflation, which remains a serious concern. Mario Draghi also spoke on the issue, saying that the ECB is ready to act if inflation slips further.

German data continues to impress. On Tuesday, Retail Sales posted a strong gain of 1.3%, cruising past the estimate of -0.5%. February's German Unemployment Change continues to show improvement, as the indicator dropped to -12 thousand, down from -14 thousand a month earlier. German Consumer Climate and Business Climate also looked sharp in February, pointing to stronger confidence in the German economy, the largest in the Eurozone.