EUR/USD – Euro Hits 14-Month High on US Political Risk

The euro has steadied on Wednesday, after recording considerable gains in the Tuesday session. Currently, EUR/USD is trading at 1.1460. Earlier in the day, the pair climbed to 1.1489, its highest level since May 1. On the release front, German WPI improved to 0.0%, but fell short of the estimate of 0.2%. Later in the day, the eurozone releases Industrial Production. In the US, Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee. On Thursday, the US releases PPI and unemployment claims. As well, Janet Yellen will testify before the Senate Banking Committee.

Janet Yellen opted to play it safe in front of a congressional committee on Wednesday, as her message testimony was essentially a repeat of what we’ve already heard from Fed policymakers. Yellen reiterated that the Fed planned to raise rates “gradually”, and added that the Fed would begin trimming its balance sheet before the end of the year. The Fed chair was careful not to provide any timelines, but many analysts are circling September for a balance sheet reduction, with a rate hike to follow in December. However, despite Yellen’s assurances, the markets remain lukewarm about a rate hike before the end of the year, given a slower US economy and stubbornly low inflation. The CME Group has pegged a December rate increase at just 47%, while other forecasts are pointing to odds as low as 40%. Hints from the Fed will not suffice to bring investors on board – unless growth and inflation numbers move higher, the markets are likely to remain lukewarm about the likelihood of a third rate hike in 2017, and a lack of confidence in another hike could weigh on the US dollar.

After a short break, Washington is again abuzz over allegations of secret ties between Russia and the Trump administration during the US election. This week’s breaking news is the revelation that Donald Trump Jr. admitted that a Russian official contacted him and offered to provide him with evidence incriminating Hillary Clinton. Predictably, the White House is ranting at the media and trying to dismiss the news, but the media and lawmakers (including Republicans) aren’t about to let Trump off the hook. This latest crisis is yet another miscue for the Trump administration, which hasn’t been able to pass any significant laws through Congress, even though Republicans control both the House of Representatives and the Senate. The latest dark cloud over the White Hous will only dampen investor confidence, and the euro took advantage on Tuesday, climbing close to 9-week highs.

Inflation levels remain a sore point in the eurozone, and Germany, the bloc’s largest economy, has not been immune to low inflation. The Wholesale Price Index declined 0.7% in May, its worst reading in 9 months. There was some improvement in the June report, with a flat reading of 0.0%. Still, German and eurozone inflation levels remain well below the ECB’s target of 2%, and as long as this situation continues, the ECB is unlikely to taper its aggressive stimulus package. We’ll get a look at German Final CPI on Thursday. The index has looked weak in the second quarter, and the estimate for June is 0.2%.

EUR/USD Fundamentals

Wednesday (July 12)

• 2:00 German WPI. Estimate 0.2%. Actual 0.0%
• 5:00 Eurozone Industrial Production. Estimate 1.0%
• Tentative – German 10-y Bond Auction
• 10:00 US Fed Chair Janet Yellen Testifies
• 10:30 US Crude Oil Inventories. Estimate -3.2M
• 13:01 US 10-y Bond Auction
• 14:00 US Beige Book

Thursday (July 13)

• 8:30 US PPI. Estimate 0.0%
• 8:30 US Unemployment Claims. Estimate 245K
• 10:00 US Federal Chair Janet Yellen Testifies

*All release times are EDT

*Key events are in bold

EUR/USD for Wednesday, July 12, 2017

EUR/USD Wednesday, July 12 at 3:40 EDT

Open: 1.1467 High: 1.1490 Low: 1.1442 Close: 1.1462

EUR/USD Technical

EUR/USD ticked higher in the Asian session. The pair has reversed directions in the European session and has posted losses

• 1.1366 has some breathing room in support following gains by EUR/USD on Tuesday
• 1.1465 was tested earlier in resistance. It is a weak line and could break during the Wednesday session

Further levels in both directions:

• Below: 1.1366, 1.1242, 1.1122 and 1.0985
• Above: 1.1465, 1.1534 and 1.1616
• Current range: 1.1366 to 1.1465

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement this week. Currently, short positions have a majority (69%), indicative of EUR/USD continuing to move lower.

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.