EUR/USD – Euro In Holding Pattern Ahead of US Inflation Report

The euro is subdued on Friday, as the pair trades at the 1.11 line in the European session. On the release front, German PPI posted a decline of 0.7%. In the US, we’ll get a look at two key events – CPI and Core CPI. If these indicators surprise the markets, we could see some immediate movement from EUR/USD.

The Eurozone continues to struggle with low inflation, and this was underscored by a soft reading from German PPI, an important gauge of inflation in the manufacturing sector. The index has failed to post a gain in the past nine months, and the January reading of -0.7% marked the sharpest drop since December 2014. Earlier in the week, ECB head Mario Draghi stated that the ECB was “ready to act” to combat low inflation, and this has raised expectations that the central bank will make a move in March, possibly increasing the ECB’s quantitative easing program, or lowering interest rates. Either of these steps would likely weaken the euro. Eurozone and German CPI reports will be released next Friday, and if these indicators are soft, Draghi will be under strong pressure to deliver at the March meeting.

The Federal Reserve was in the spotlight earlier this week, with the release of the minutes of the January policy meeting. The statement after the meeting was cautious in tone, and the minutes reiterated the central bank’s concern that turmoil in global markets could have negative repercussions for the US economy. Policymakers sent out a broad hint that a rate hike is unlikely in March, as they discussed “altering their earlier views of the appropriate path for the target range for the federal funds rate”. This could have a negative impact on the US dollar, as investors may look elsewhere to park funds if US rates are not moving higher anytime soon. Federal Reserve chair Janet Yellen said last week that the Fed still planned to raise rates later in 2016, but FOMC member James Bullard argued that there was room to delay any rate moves, given global financial turmoil and weak US inflation. Still, a growing number of market players are skeptical that the Fed will make any moves before next year. Back in the heady days of December, the Fed hinted at a series of rate hikes during 2016, but the turmoil in the financial markets and the downturn in the US economy in 2016 has quickly dampened expectations of a rate move.

Friday (Feb. 19)

• 2:00 German PPI. Estimate -0.3%. Actual -0.7%
• 8:00 FOMC Loretta Mester Speaks
• 8:30 US CPI. Estimate -0.1%
• 8:30 US Core CPI. Estimate +0.2%
• 10:00 Eurozone Consumer Confidence. Estimate -7 points

*Key events are in bold

*All release times are EST

EUR/USD for Friday, February 19, 2016

EUR/USD February 19 at 5:55 EST

Open: 1.1107 Low: 1.1083 High: 1.1139 Close: 1.1103

EUR/USD Technical

• EUR/USD was flat in the Asian and has posted slight losses in European trade
• There is resistance at 1.1172
• 1.1087 is providing support but is under strong pressure. This line could break during the day
• Current range: 1.1087 to 1.1172

Further levels in both directions:

• Below: 1.1087, 1.0941 and 1.0847
• Above: 1.1172, 1.1278, 1.1349 and 1.1495

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged, consistent with the lack of movement from EUR/USD. Short positions retain a strong majority of positions (58%). This points to trader bias towards the euro continuing to move downwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.