EUR/USD – Euro Subdued, Markets Await Yellen Testimony

EUR/USD has posted slight gains on Wednesday, as the pair trades at 1.1260 in the European session. The euro has resumed its upward flight, gaining 100 points on Tuesday. On the release front, French and Italian Production both posted declines. In today’s key event, Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee in Washington. With the markets looking for clues regarding the timing of another rate hike, this event could be a market-mover, so traders should be prepared for possible volatility from EUR/USD during the day.

Eurozone manufacturing numbers continue to slide. French Industrial Production dropped by 1.6%, while Italian Industrial Production fell by 0.7%. Both readings fell short of expectations. Germany, the bloc’s largest economy, has also been grappling with soft industrial data. German Industrial Production came in at -1.2%, compared to a forecast of +0.2%. This was the indicator’s fourth decline in the past five months. The soft reading comes on the heels of the December report for German Factory Orders, which posted a decline of 0.7%, compared to a gain of 1.5% a month earlier. An important reason for these weak numbers is the slowdown in China, a key trading partner of the Eurozone. Weaker demand from China, the world’s No. 2 economy, has resulted in financial turmoil across the globe and is taking a toll on the German and Eurozone manufacturing sectors. The contagion of the Chinese downturn could spread to other sectors of the Eurozone economy, which could weaken the euro.

Fed chair Janet Yellen will testify before Congress on Wednesday and Thursday, and is sure to face some pointed questions from lawmakers. After a historic rate hike in December, the Fed remained on the sidelines in January, and its dovish policy statement reflected a softening in US economic growth. Does this mean a March rate move is off the table? Naturally, the Fed will not give a clear answer to this question, but the markets will be looking for some clarity from Janet Yellen about the Fed’s monetary plans. If Yellen paints a pessimistic picture of the economy, the euro could move higher against the greenback. Just a couple of months ago, the Fed was hinting that we could see a series of rate hikes in 2016, but the recent turmoil in global markets has drastically changed these plans, with some experts openly questioning if the Fed will make any more moves before next year.

EUR/USD Fundamentals

Wednesday (Feb. 10)

• 2:45 French Industrial Production. Estimate +0.2%. Actual -1.6%
• 4:00 Italian Industrial Production. Estimate +0.3%. Actual -0.7%
• 10:00 Fed Chair Janet Yellen Testifies
• 10:30 US Crude Oil Inventories. Estimate 3.1M
• 13:01 US 10-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate 10.3B

Upcoming Key Events

Thursday (Feb. 11)

• 8:30 US Unemployment Claims. Estimate 287K
• 10:00 Fed Chair Janet Yellen Testifies

*Key events are in bold

*All release times are EST

EUR/USD for Wednesday, February 10, 2016

EUR/USD February 10 at 4:50 EST

Open: 1.1288 Low: 1.1251 High: 1.1312 Close: 1.1263

EUR/USD Technical

• EUR/USD has shown marginal movement in the Asian and European sessions
• 1.1172 has strengthened in support as the pair trades at higher levels
• There is weak resistance at 1.1278. This line could break during the day
• Current range: 1.1172 to 1.1278

Further levels in both directions:

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

OANDA’s Open Positions Ratio

EUR/USD is unchanged. Short positions retain a strong majority of positions (62%). This points to trader bias towards the euro breaking out and heading 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.