EUR/USD – Euro Climbs to 2-Week High Ahead of ECB Rate Decision

The euro has posted slight gains in the Thursday session. Currently, EUR/USD is trading at 1.1270. On the release front, the ECB will announce its interest rate for September. In the US, today’s highlight is unemployment claims, with the indicator expected to remain steady at 264 thousand.

All eyes are on Mario Draghi & Co., as the ECB will announce its benchmark interest rate on Thursday. The rate has been pegged at a flat 0.00 percent since January, and the markets are expecting the rate to remain unchanged. Still, there is pressure on the ECB to make a move, as growth and inflation remain at low levels. We could see Draghi refrain from any action and go no further than hint at further expansion of the ECB’s asset-purchase program. This would buy the bank some more time to wait and see if Eurozone data improves before the next rate meeting. The markets will be closely monitoring Draghi’s follow-up press conference, which is often more dramatic than the rate statement.

Soft German manufacturing numbers this week continue to raise concerns about the health of the manufacturing sector. Industrial Production dropped 1.5%, its sharpest decline since August 2014. On Tuesday, Factory Orders posted a small gain of 0.2%, the first gain since March. Last week’s Manufacturing PMI came in at 53.4 points, pointing to slight expansion. Still, this marked the weakest pace of expansion in three months. As the Eurozone’s largest economy, German indicators are often a bellwether for the Eurozone. If upcoming manufacturing data from the bloc remains weak, the euro could lose ground.

An upbeat speech from Federal Reserve chair Janet Yellen at the Jackson Hole summit renewed speculation about a rate hike before the end of 2016. However, a spate of weak US numbers in the past week has lowered the likelihood of a move by the Fed. The CME FedWatch Tool is showing a substantial drop in the odds of a rate hike for both September and December – the likelihood of a September rise has dropped to 15%, while the odds of a December hike are down to 39%. Even though the US labor market remains close to full capacity, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, exactly a year from the last rate hike. 

EUR/USD Fundamentals

Thursday (September 8)

• 5:30 French Final Non-Farm Payrolls. Estimate 0.2%. Actual 0.2%
• 11:45 ECB Minimum Bid Rate. Estimate 0.00%
• 12:30 ECB Press Conference
• 12:30 US Unemployment Claims. Estimate 264K
• 14:30 US Natural Gas Storage. Estimate 44B
• 15:00 US Crude Oil Inventories. Estimate 0.6M
• 19:00 US Consumer Credit. Estimate 15.7B

*All release times are EDT

* Key events are in bold

EUR/USD for Thursday, September 8, 2016

EUR/USD September 8 at 9:45 GMT

Open: 1.1237 High: 1.1279 Low: 1.1233 Close: 1.1276

EUR/USD Technical

• EUR/USD showed limited movement in the Asian session and has posted slight gains in European trade
• 1.1278 is under pressure as support. It could break during the Thursday session
• 1.1150 is providing strong support

Further levels in both directions:

• Below: 1.1150, 1.1054, 1.0957 and 1.0821
• Above: 1.278, 1.1376 and 1.1467
• Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio unchanged on Thursday. Short positions have a significant majority (57%), indicative of trader bias towards EUR/USD breaking out and moving to lower ground.

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