EUR/USD – Euro Steady on Positive Eurozone, German PMIs

EUR/USD is subdued on Tuesday, continuing the lack of movement which we saw in the Monday session. The pair is trading at 1.1140. On the release front, there are no major releases out of the Eurozone or the US. Eurozone and German Final Services PMI both beat their estimates. Eurozone Retail Sales improved to 0.4%, matching the forecast. In the US, today’s highlight is Factory Orders. We’ll also hear from FOMC Member William Dudley. On Wednesday, ECB President Mario Draghi will address an ECB event in Frankfurt. As well, the Federal Reserve will release the minutes of its June policy meeting.

Market focus on whether the Federal Reserve would raise rates has understandably shifted to the back-burner since the Brexit vote in late June. The historic referendum has had economic repercussions across the globe, including the US. What will be the effect of Brexit on US monetary policy? It may be too early too tell, but some analysts have said that the Fed might change stance and actually lower rates this year. The markets will be keenly interested in the Fed minutes, although they will have preceded the Brexit vote. Fed Chair Janet Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards.

The Brexit vote to leave the European Union continues to cause deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. Although the financial markets have stabilized, the British pound has shed about 11 percent since the vote, and is trading at 30-year lows. British politicians have sought to calm the public and the markets, but the pound’s free-fall underscores that the situation is anything but normal. The country’s political picture is in flux, as the Conservatives are choosing a new leader to replace Prime Minister Cameron and elections may follow later in the year. On the financial front, the pound has taken a beating and London’s position as a world financial center could be in jeopardy. Last week, the normally even-keel BoE Governor Mark Carney was surprisingly blunt, stating that the BoE planned to lower interest rates during the summer, and this will only add pressure on the battered UK financial sector.

Britain may have voted “Out”, but there is no timetable as to when the exit will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU, Britain finds itself in limbo (“neither in nor out”), and such uncertainty could continue to weigh on the currency markets until some decisions are reached regarding Britain’s exit from the EU.

EUR/USD Fundamentals

Tuesday (July 5)

• 7:15 Spanish Services PMI. Estimate 55.2. Actual 56.0
• 7:15 Italian Services PMI. Estimate 50.3. Actual 51.9
• 7:50 French Services PMI. Estimate 49.9. Actual 49.9
• 7:55 German Final Services PMI. Estimate 53.2. Actual 53.7
• 8:00 Eurozone Final Services PMI. Estimate 52.5. Actual 52.8
• 9:00 Eurozone Retail Sales. Estimate 0.4%
• 14:00 US Factory Orders. Estimate -0.8%
• 14:00 US IBD/TIPP Economic Optimism. Estimate 49.3
• 18:30 US FOMC Member William Dudley Speaks

Updated Key Events

Wednesday (July 6)

• 8:00 ECB President Mario Draghi Speaks
• 14:00 US ISM Non-Manufacturing PMI. Estimate 53.3
• 18:00 US FOMC Meeting Minutes

* Key releases are in bold

*All release times are GMT

EUR/USD for Tuesday, July 5, 2016

EUR/USD July 5 at 9:10 GMT

Open: 1.1145 Low: 1.1118 High: 1.1186 Close: 1.1139

EUR/USD Technical

• EUR/USD posted small losses in the Asian session and is choppy in European trade
• 1.1150 remains fluid and is a weak resistance line. It is a weak line and could see further action during the day
• 1.1054 is providing support

Further levels in both directions:

• Below: 1.1054, 1.092 and 1.0821
• Above: 1.1150, 1.1278, 1.1376 and 1.1495
• Current range: 1.1054 to 1.1150

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged Tuesday, consistent with the lack of movement from EUR/USD. Short positions have a majority (62%), 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.