EUR/USD lost ground after ECB rate decision, US employment data

The euro fell sharply against the US dollar on Thursday, following the interest rate decision by the European Central Bank (ECB) and the release of series of data on employment out of the United States, which added to the case that the Federal Reserve Bank may start tapering its easing program this month.

EUR/USD came off its highest point for the day at 1.3222, recorded at 12:16 GMT, to trade at 1.3161 at 12:50 GMT, losing 0.35% daily. Support was likely to be received at July 19th low, 1.3090, while resistance was to be seen at August 30th high, 1.3255.

The European Central Bank (ECB) left its benchmark interest rate unchanged at record low level of 0.50% at its meeting today, amid signs that recovering economy of the euro region has exited the recessionary period, while the rate of inflation remained low. Policymakers left the benchmark without change for a fourth month in a row, after reducing it by a quarter percent during May. The bank held its deposit rate at zero and its marginal lending rate at 1%.

As interest-rate expectations neared levels that ECB President Mario Draghi described in August as “unwarranted,” it is expected that his challenge will be to convince investors of his pledge in July to keep rates low even as the economy recovered.

“Draghi is going to give it another try to push down rate expectations today,” said Nick Kounis, head of macro research at ABN Amro NV in Amsterdam, cited by Bloomberg. “The ECB is certainly not happy with the market’s reaction over the past months.”

The ECB is going to propose new growth and inflation forecasts for the common currency bloc today, after economic growth in the second quarter of the year exceeded projections. An index of the region’s services and manufacturing activity in August climbed to the highest point since June 2011, while economic confidence jumped to a two-year high. The central bank projected in June that blocs economy will contract by 0.6% during 2013, before expanding 1.1% in 2014. It also predicted that inflation rate will come at 1.4% in 2013 and 1.3% in 2014, well below its target of 2%, which is considered as providing price stability.

In addition, earlier on Thursday a report showed that German factory orders registered a drop in the month of July, following the unexpected climb in June. Germanys Ministry of Economy said that indicators positive trend during the third quarter of the year remained intact. The diminished demand for factory goods came as no surprise, as Junes strong result was mostly due to orders for the airshow in Paris. Factory orders dropped by 2.7% in July compared to June, exceeding preliminary estimates of a lesser decrease, by 1.0%. Julys decrease, however, did not vanquish completely the 5.0% increase in June, as the latter was a revision up from a 3.8% increase previously. In annual terms, factory orders rose by 2.0% in July, below the expected 2.9% gain, following the 5.6% advance, recorded a month ago.

Meanwhile, in the United States, the private sector managed to add job positions at a slightly slower rate in August, as US employment increased by 176 000, according to data by Automatic Data Processing Inc. (ADP). These results were close to the initially estimated (182 000 new jobs) and would probably not influence expectations of the official data on non-farm payrolls in the United States, due out on Friday. ADPs July result was revised down to 198 000 jobs from 200 000 previously.

In addition, the number of people, who filed for unemployment assistance in the United States, decreased again during the past week, reaching levels before the recessionary period. Initial jobless claims dropped by 9 000 to 323 000 during the week ending on August 31st 2013, exceeding expectations of a lesser drop to 330 000. The number of claims during the preceding week was revised up to 332 000 from 331 000 previously. The indicator remained close to its lowest value, recorded in late July. The average number of claims during the past four weeks, an indicator considered as lacking seasonal effects, decreased by 3 000 to 328 500, marking its lowest point since October 2007.

These above mentioned data points could strongly add to the prospects of a possible pare back of Federal Reserves Quantitative Easing at its policy meeting on September 17-18th.

Elsewhere, the euro was still losing ground against the sterling, with EUR/GBP cross down by 0.31% on a daily basis to trade at 0.8428. EUR/JPY pair was also on negative territory, down by 0.21% to trade at 131.46.