EUR/USD – Euro Unchanged, Euro Manufacturing PMIs Meet Expectations

The euro is unchanged in the Friday, as EUR/USD continues to hug the 1.11 line. It’s an unusually busy Friday, so the markets will have plenty of economic data to digest from the Eurozone and the US. In the Eurozone, German and Eurozone Manufacturing PMI reports met expectations, as both indicators pointed to expansion in the manufacturing sector. Over in the US, today’s highlight is ISM Manufacturing PMI. The indicator is expected to remain unchanged at 51.3 points.

With the financial markets understandably focused on the stunning Brexit vote, the Federal Reserve and future monetary moves have shifted to the back-burner. That could change next week, as Fed Chair Janet Yellen will deliver a speech in Philadelphia. Will she provide any clues about a rate move? Yellen and her colleagues have sounded cautious about the US economy, and unless we see stronger employment and inflation numbers in the second half of 2016, the Fed may remain on the sidelines until 2017. Gone are the heady days of last December, when the Fed hiked rates and hinted that there was more to come in 2016, perhaps as many as four hikes. Bottom line? Traders shouldn’t count on an imminent rate hike to boost the US dollar; rather, the direction of the currency will largely be data-dependent – the Fed is unlikely to budge unless we see significantly improved employment and inflation numbers.

It’s been exactly a week since the historic referendum which saw the British electorate vote to exit the European Union after 40 years. The vote to leave the EU has caused deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. As the dust has begun to settle, however, the financial markets have stabilized. The pound plunged as much as 11 percent in the aftermath of the vote but has stabilized in the past few days. Still, political leaders on both sides of the Channel will have to pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without the UK. British politic have sought to calm the public and the markets, but the pound’s sharp drop on Thursday underscores that the situation is anything but normal. The country’s political picture is fluid, as the Conservatives are choosing a new leader, the Labor Party is in turmoil and elections may not be far away. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders can expect further volatility in the currency markets.

British Prime Minister Cameron was in the unenviable position of meeting with fuming European leaders at an EU Summit this week. Cameron asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks, and the “divorce of the “century” between Britain and the EU could be rancorous and messy. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande wasted no time going on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt. In a strictly legal sense, Britain is still a member of the EU club, but politically, it is persona non grata (British EU Commissioner Jonathan Hill resigned shortly after the Brexit vote). The markets are allergic to uncertainty, so Britain’s unclear status within the EU will likely continue to weigh on the pound and the euro.

EUR/USD Fundamentals

Friday (July 1)

• 7:15 Spanish Manufacturing PMI. Estimate 52.1. Actual 52.1
• 7:45 Italian Manufacturing PMI. Estimate 52.7. Actual 53.5
• 7:50 French Final Manufacturing PMI. Estimate 47.9. Actual 48.3
• 7:55 German Final Manufacturing PMI. Estimate 54.5. Actual 54.5
• 8:00 Eurozone Final Manufacturing PMI. Estimate 52.6. Actual 52.6
• 8:00 Italian Monthly Unemployment Rate. Actual 11.7%. Actual 11.5%
• 9:00 Eurozone Unemployment Rate. Estimate 10.1%
• 13:45 US Final Manufacturing PMI. Estimate 51.4
• 14:00 US ISM Manufacturing PMI. Estimate 51.3
• 14:00 US Construction Spending. Estimate 0.6%
• 14:00 US ISM Manufacturing Prices. Estimate 63.9
• All Day – US Total Vehicle Sales. Estimate 17.3M

* Key releases are in bold

*All release times are GMT

EUR/USD for Friday, July 1, 2016

EUR/USD July 1 at 9:25 GMT

Open: 1.1102 Low: 1.1072 High: 1.1117 Close: 1.1091

EUR/USD Technical

• EUR/USD has showed limited movement in the Asian and European sessions
• 1.1054 is providing support
• There is resistance at 1.1150

Further levels in both directions:

• Below: 1.1054, 1.0925, 1.0821 and 1.0713
• Above: 1.1150, 1.1278 and 1.1376
• Current range: 1.1054 to 1.1150

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Friday, consistent with the lack of movement from EUR/USD. Short positions have a majority (61%), indicative of trader bias towards EUR/USD breaking out and moving 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.