EUR/USD – Euro Unchanged, Markets Eye Eurozone PMIs

The euro is unchanged on Monday, as EUR/USD trades at the 1.13 line. With no events from the Eurozone or US on the schedule, the pair could show limited movement throughout the day. On Tuesday, the Eurozone releases Services and Manufacturing PMIs, while the US publishes New Home Sales.

Low inflation numbers have long been the bane of the Eurozone economy, and last week’s numbers were also soft, although at least the indicators were within market expectations. German PPI, which measures wholesales prices, dipped to 0.2%, compared to 0.4% in the past two readings. Eurozone Final CPI also posted a gain of 0.2%, after a gain of 0.1% in June. This small gain marks the indicator’s strongest reading in five months, underscoring persistent weakness in inflation levels on the continent. There are strong concerns that third quarter data, which covers the period immediately after the Brexit referendum vote in late June, will point to weaker growth and even lower inflation levels in the Eurozone. This could put more pressure on the ECB to step in and adopt further easing measures in order to kick-start the economy and boost inflation. PMI reports for August will be released on Tuesday, and the markets are expecting the indicators to stay close to the July readings, most of which pointed to expansion.

Central bank heads will meet for the annual tête-à-tête in Jackson Hole on Thursday, and the markets will be looking for hints from Federal Reserve chair Janet Yellen regarding the Fed’s monetary plans, particularly the timing a rate hike. FOMC members are expected to express their views ahead of the key meeting. Fed Vice Chairman Stanley Fischer took the opportunity and sounded upbeat about the US economy, saying that the Fed was close to its aims of a full labor market and the inflation target of 2 percent. The latter claim sounds a bit optimistic, as US inflation levels have consistently been closer to zero than the 2 percent level. It will be interesting to see if Janet Yellen follows suit and expresses satisfaction with current inflation levels.

Any market players who were hoping for some clarity from last week’s Federal Reserves minutes were likely none the wiser after combing through the minutes. The release, which provided the details of the July policy meeting, indicated that FOMC members are deeply divided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%. Recent data is pointing in all directions, which explains why the Fed is divided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers. The great rate debate needs to be resolved one way or another, as the Fed must set rates at its policy meeting next month. Policymakers will be fine-combing through upcoming economic releases, particularly employment and inflation numbers. The news remains bleak on the inflation front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. As of now, a September hike is virtually off the table, while the odds of a December hike are around 40%.

EUR/USD Fundamentals

Monday (August 22)

*There are no Eurozone or US events on the schedule

EUR/USD for Monday, August 22, 2016

EUR/USD August 22 at 9:15 GMT

Open: 1.1298 High: 1.1302 Low: 1.1270 Close: 1.1294

EUR/USD Technical

• EUR/USD posted slight losses in the Asian session but has recovered in European trade
•  1.1278 was tested earlier in support and is a weak line
•  There is resistance at 1.1376

Further levels in both directions:

• Below: 1.1278, 1.1150 and 1.1054
• Above: 1.1376, 1.1467 and 1.1534
• Current range: 1.1278 to 1.1376

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Monday, consistent with the lack of movement from EUR/USD. Currently, short positions have a strong majority (65%), indicative of trader bias towards EUR/USD breaking out and moving 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.