EUR/USD – Euro Edges Up Ahead of ECB Rate Announcement

EUR/USD has edged upwards on Thursday, following gains in the Wednesday session. The pair is trading just above the 1.12 line. It’s a busy day in the Eurozone and the US. In the Eurozone, today’s highlight is the ECB rate announcement. In the US, job numbers will be in focus, with the release of ADP Nonfarm Employment Change, Average Hourly Earnings and Unemployment Claims. As well, OPEC members will gather for a summit in Vienna.

The ECB meets later on Thursday and release its monthly rate announcement. Interest rates have been pegged at a flat 0.00% for the past two months, but growth remains soft and the economy is grappling with deflation. This was underscored on Wednesday, as German Retail Sales and Eurozone CPI Flash Estimate continue to post declines in 2016. It’s unlikely that the Eurozone economy would earn a passing grade from the ECB, but will this be enough to prod Mario Draghi to take action? The weapons of choice are lowering rates yet again, or expanding the ECB’s asset-purchase program. The markets are not expecting any such moves, but Draghi may well reiterate that the ECB will not hesitate to act if economic conditions, namely growth and inflation indicators, point downwards.

OPEC members will gather in Vienna on Thursday, but analysts are not expecting OPEC members to reach an agreement on a production cap or new targets, given the deep animosity between Saudi Arabia and Iran. Iran has refused to agree on an output policy in recent years, preventing members from reaching an agreement to lower or freeze production in order to boost low oil prices. Iran reiterated its policy on Wednesday, saying it would not sign off on any commitment regarding output levels. The current situation has allowed OPEC countries to pump at will, as members have adopted a mantra of “every man for himself”, jockeying for a larger piece of the oil market pie. Thursday will also see the release of Crude Oil Inventories, which could result in volatility in the oil market.

Only a few weeks ago, a rate hike in the US was considered very unlikely. However, recent comments by Federal Reserve chair Janet Yellen and other Fed policymakers have strongly hinted that a rate hike is on the table this summer. Last week, Yellen said that if the US economy continued to improve, a rate hike would be appropriate in the “coming months”. This was followed by St. Louis Reserve President James Bullard, who said on Monday that global markets were “well prepared” for a summer interest rate rise, although he didn’t provide any specific dates. According to CME Group, traders have priced in a June rate hike at 28%, 60% for July and 68% in September. Still, the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. Market sentiment has strongly shifted towards the Fed raising rates, and this could boost the US dollar against its rivals.

EUR/USD Fundamentals

Thursday (June 2)

• All Day – OPEC Meetings
• 7:00 Spanish Unemployment Change. Estimate -110.0K. Actual -119.8K
• 9:00 Eurozone PPI. Estimate 0.1%
• Tentative – Spanish 10-year Bond Auction
• Tentative – French 10-year Bond Auction
• 11:30 US Challenger Job Cuts
• 11:45 Eurozone Minimum Bid Rate. Estimate 0.00%
• 12:15 US ADP Nonfarm Employment Change. Estimate 177K
• 12:30 ECB Press Conference
• 12:30 US Unemployment Claims. Estimate 270K
• 12:35 US FOMC Member Jerome Powell Speaks
• 14:30 US Natural Gas Storage. Estimate 83B
• 15:00 US Crude Oil Inventories. Estimate -2.7M

Upcoming Key Events

Friday (June 3)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 159K
• 8:30 US Unemployment Rate. Estimate 4.9%
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4

*Key events are in bold

*All release times are GMT

EUR/USD for Thursday, June 2, 2016

EUR/USD June 2 at 8:05 GMT

Open: 1.1187 Low: 1.1185 High: 1.1220 Close: 1.1211

EUR/USD Technical

• EUR/US has shown limited movement in the Asian and European sessions
• 1.1172 has switched to a support role. It is a weak line
• There is resistance at 1.1278

Further levels in both directions:

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

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement on Thursday. Long and short positions are close to an even split, indicative of a lack of trader bias as to what direction EUR/USD will take next.

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.