EUR/USD steady, close to session highs after ADP report, FOMC decision in focus

The euro traded steadily and in proximity to session highs on Wednesday against the US dollar, following the disappointing ADP report on employment and as market players remained cautious ahead of the conclusion of Federal Reserve Banks two-day meeting on policy.

EUR/USD hit a session high at 1.3778 at 11:15 GMT, after which consolidation followed at 1.3762, gaining 0.12% for the day. Support was likely to be received at October 20th low, 1.3681, while resistance was to be encountered at October 29th high, 1.3813.

The euro gained certain ground against the greenback earlier today, following a report, which showed that Spain has been dragged out of the two-year recessionary period during the third quarter of the year. Nations GDP grew 0.1% in Q3 in consonance with expectations, following the 0.1% dip during the second quarter.

However, the common currency was restrained in its upward movement, after it became clear that the number of unemployed people in Germany unexpectedly rose in October, as economic recovery in the country remained suppressed and a significant acceleration was not likely by the end of the year. According to data by Germanys Labor Department, the number of people who filed for unemployment assistance increased for a third consecutive month in October, by 2 000 in comparison with a month ago. Expectations pointed a lesser increase, by 1 000. Labor market outlook in the country was dampened, as the new government intends to introduce a minimal wage of 8.50 euros per hour. This, according to some experts, may lead to a loss of job positions, especially within the smaller enterprises. The rate of unemployment in the country remained stable at 6.9% in October in line with forecasts.

At the same time, consumers and business entities in the Euro zone were more optimistic in October, with the index, gauging economic sentiment, rising to levels unseen during the past two years. Improving economic conditions in the region probably supported optimism over the development in the upcoming six months, but yet it might take a while before this higher confidence influences the frail recovery. Consumer spending was unlikely to register a rapid growth, until unemployment rate remains at the current record high levels and lending remains obstructed. The index of economic sentiment in the bloc advanced to a reading of 97.8 in October, or the highest point since August 2011, as in September it stood at 96.9. Confidence among manufacturing companies and households increased, while confidence among retailers, construction companies and service providers lowered. The index of business climate improved to a reading of -0.01 in October from -0.19 in September. Euro regions economy has exited the 18-month recessionary period during the second quarter of the year, while the official GDP data for Q3 is expected in mid-November.

Meanwhile, the Automatic Data Processing Inc. (ADP) said in a report that private sector in the United States added fewer than expected jobs in October, 130 000 instead of 148 000. Septembers figure has been revised down to 145 000 new jobs from 166 000 previously. Analysts use this indicator as a benchmark for the official non-farm payrolls data, which is scheduled for release next week.

This data by ADP came as another signal to boost the case that the Federal Reserve Bank will probably postpone its plans to scale back the pace of Quantitative Easing (QE) until early next year. It is also expected that Fed officials will leave interest rates close to zero, a course which has been followed since the fall of 2008. Since then about 3.7 trillion USD in bond purchases have been poured into US economy during the three rounds of the QE. Such a measure tends to curb rising longer-term interest rates, as this also strives to stimulate lending to individuals and companies. Consequently, the national currency tends to be devalued, which explains why the greenback is usually put under pressure ahead of the official stimulus decision by the Federal Reserve.

Elsewhere, the euro was losing ground against the pound, as EUR/GBP cross was down 0.11% on a daily basis to trade at 0.8560 at 12:08 GMT. EUR/JPY pair was steady, gaining 0.05% to trade at 135.10 at 12:09 GMT.