EUR/USD – Strong German Business Report Fails to Lift Euro

EUR/USD is showing little movement on Wednesday, following sharp losses in the Tuesday session. The pair is trading at 1.1150. On the release front, German Ifo Business Climate improved to 107.7 points, beating expectations. In the US, we’ll get a look at Goods Trade Balance and Crude Oil Inventories. On Thursday, the US releases durable good reports.

The euro remains under pressure, and losses on Tuesday saw the currency drop to 9-week lows against the strong US dollar. The currency shrugged off a strong reading from German Ifo Business Climate, which climbed to 107.7 points, above the estimate of 106.9. This was the indicator’s best showing in five months. German and Eurozone ZEW Economic Sentiment reports both softened in May and missed expectations, and EUR/USD responded by dropping 80 points. Earlier in the week, German Final GDP recorded a respectable gain of 0.7% in the first quarter. This figure was unchanged from German Preliminary GDP, which also posted a 0.7% gain. With the ECB holding a policy meeting on June 2, German releases will play a key role in the ECB’s decision-making process. Stronger German data would point to an improving Eurozone economy and reduce pressure on the ECB to take action such as cutting interest rates into negative territory.

Will the Federal Reserve make a move in June? Last week’s Federal Reserve’s minutes were more hawkish than expected, and this resulted in strong volatility in the currency markets last week. It has also renewed market speculation about a June rate hike. The Fed is unlikely to make a move if key indicators don’t show improvement, particularly inflation indicators. On Monday, FOMC members James Bullard and John Williams voiced support for further rate hikes. Bullard said that the Fed planned to resume rate hikes if the US economy strengthened, while Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between what Fed members are saying and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

EUR/USD Fundamentals

Wednesday (May 25)

• 6:00 GfK German Consumer Climate. Estimate 9.8. Actual 9.7
• 8:00 German Ifo Business Climate. Estimate 106.9. Actual 107.7
• 9:31 German 30-year Bond Auction. Actual 0.88%
• All Day – ECOFIN Meetings
• 12:30 US Goods Trade Balance. Estimate -60.1B
• 13:00 Belgian NBB Business Climate. Estimate -1.8
• 13:00 US HPI. Estimate 0.4%
• 13:45 US Flash Services PMI. Estimate 53.1
• 14:30 US Crude Oil Inventories. Estimate -1.7M

Thursday (May 26)

• 12:30 US Core Durable Goods Orders. Estimate 0.3%
• 12:30 US Unemployment Claims. Estimate 275K

*All release times are GMT

EUR/USD for Wednesday, May 25, 2016

EUR/USD May 25 at 6:00 GMT

Open: 1.1135 Low: 1.1158 High: 1.1134 Close: 1.1149

EUR/USD Technical

• EUR/USD is showing limited movement in the Asian and European sessions
• 1.1172 has switched to a resistance role following sharp losses by EUR/USD on Tuesday. It is a weak line
• 1.1054 is providing support

Further levels in both directions:

• Below: 1.1054, 1.0909 and 1.0821
• Above: 1.1172, 1.1278, 1.1378 and 1.1495
• Current range: 1.1054 to 1.1172

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement on Wednesday, consistent with the lack of movement from EUR/USD. Short positions maintain a majority (53%). This is indicative of strong trader bias towards EUR/USD breaking out and dropping to lower levels.

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.