EUR/USD – Euro Slide Continues as Yellen Hints at Rate Hike

EUR/USD has ticked lower on Friday, following sharp losses in the Thursday session. Currently, the pair is trading at the 1.06 line. On the release front, it’s a quiet end to the trading week, with no major releases. German PPI posted a gain of 0.7%, beating the estimate of 0.3%. In the US, the sole economic release is the CB Leading Index, with an estimate of 0.1%. The markets will be more interested in hearing from three FOMC members, who will deliver speeches during the day. This follows Janet Yellen’s testimony before the Joint Economic Committee on Thursday.

US numbers were generally positive on Thursday, as the economy continues to move in the right direction. Unemployment Claims sparkled at 235 thousand, much lower than the estimate of 257 thousand. This marked the lowest weekly claims total since 1973. CPI matched expectations at 0.4%, but Core CPI came in at 0.1% shy of the estimate of 0.2%.  The Philly Fed Manufacturing Index dropped to 7.6 points, short of the forecast. On the housing front, Housing Starts remained unchanged at 1.23 million, above expectations.

The US dollar posted sharp gains on Thursday, following Fed Chair Yellen’s appearance before a congressional committee. Yellen did not explicitly acknowledge that the Fed would raise rates at the December 13-14 policy meeting, but she did say that the rate hike would be “relatively soon”. Yellen make no mention of Donald Trump’s potential policies, which could include greater fiscal spending, as she reiterated that future rate hikes should be “gradual”. The odds of a rate hike next month stand at 90 percent. Commenting on Yellen’s testimony, Jonathan Wright, a former Fed economist, summed up market sentiment –  “a rate hike in December is a done deal, barring a significant surprise in the next jobs numbers or in financial markets”.

It was an unusually quiet week for Eurozone releases, with only two major indicators. German Preliminary GDP slipped to 0.2% in the third quarter, marking its smallest gain since Q3 in 2014. There was better news from German ZEW Economic Sentiment, which provide a snapshot of the mood of institutional investors and analysts. The German report showed a sharp gain of 13.8 points, well above the forecast of 7.9 points. The Eurozone release improved to 15.8, above the estimate of 7.9. Both indicators posted 4-month highs, pointing to strong optimism over economic growth on the continent. However, the head of the ZEW (Center of European Economic Research), reflecting widespread unease over Donald Trump’s election, said that Trump’s economic plans are “thin and show no policy rationale” and added that the election has ushered in a period of uncertainty. The US dollar has taken full advantage of the market turmoil triggered by Trump’s unlikely victory, posting strong gains against most major currencies. EUR/USD is in a slump, having declined 4.5% since November 7. The pair is now at its lowest level since November 2015.

Fed Hike Odds Near 100%

EUR/USD Fundamentals

• 7:00 German PPI. Estimate 0.3%. Actual 0.7%
• 8:30 ECB President Draghi Speech
• 9:00 Eurozone Current Account. Actual 25.3B. Estimate 31.3B
• 10:30 German Buba President Weidmann Speaks
• 10:30 US FOMC Member James Bullard Speaks
• 14:30 US FOMC Member William Dudley Speaks
• 14:30 US FOMC Member Esther George Speaks
• 15:00 US CB Leading Index. Estimate 0.1%

*All release times are GMT

* Key events are in bold

EUR/USD for Friday, November 18, 2016

EUR/USD November 18 at 9:50 GMT

Open: 1.0622 High: 1.0628 Low: 1.0580 Close: 1.0604

EUR/USD Technical

• EUR/USD posted small losses in the Asian session and has been flat in European trade. The pair broke through two support lines on Thursday, following sharp losses by EUR/USD
• 1.0505 is providing support
• 1.0616 is fluid and is currently a weak resistance line

Further levels in both directions:

• Below: 1.0506, 1.0414 and 1.0287
• Above: 1.0616, 1.0708, 1.0821 and 1.0957
• Current range: 1.0506 to 1.0616

OANDA’s Open Positions Ratio

EUR/USD ratio has posted gains in short positions. Currently, short positions have a majority (67%), indicative of trader bias towards EUR/USD continuing to move to lower ground.

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.