Euro Yawns as German Consumer Climate Meets Expectations

The euro remains steady on Friday, the final session before the Christmas holidays. Currently, EUR/USD is trading at 1.0450. On the release front, GfK German Consumer Climate edged up to 9.9 points, above the forecast of 9.8 points. In the US, the week wraps up with UoM Consumer Sentiment, with the markets expecting a strong improvement to 98.2 points.

After a quiet week, there was plenty of data for the markets to digest on Thursday. US Final GDP posted an excellent gain of 3.5%, above the forecast of 3.3%. Durable goods reports were a mixed bag. Core Durable Goods Orders gained 0.5%, above the forecast of 0.2%. Durable Goods Orders posted a sharp decline of 4.6%, but this was better than the forecast of -4.9%. On the employment front, unemployment claims jumped to 275 thousand, much weaker than the forecast of 255 thousand. Still, the for-week average of jobless claims remains at very low levels.

The US economy continues to expand at a brisk clip, as underscored by the most recent revision to third quarter GDP. The Final GDP reading of 3.5% beat the estimate of 3.3%. This figure marked an upward revision of an earlier GDP forecast of 3.2%. The stellar reading can be attributed to stronger consumer spending and an increase in business investment, and marked the strongest growth rate since the third quarter of 2015.

Now that the Federal Reserve has taken the leap and raised rates by a quarter point, what can we expect from the Fed in the coming months? In September, when speculation of a rate hike began to heat up, Fed officials said they expected two rate hikes in 2017. However, with the US economy showing solid growth and the labor market close to capacity, the Fed is now projecting three or even four hikes next year. However, projections can change based on conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the incoming Trump administration could play a critical role in the Fed’s monetary stance. Trump’s economic platform remains sketchy, but there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s plans to cut taxes and increase fiscal spending will lead to higher inflation. If inflation levels do heat up in early 2017, there will be pressure on the Fed to step in and raise interest rates.

EUR/USD Fundamentals

Friday (December 23)

• 7:00 GfK German Consumer Climate. Estimate 9.9. Actual 9.8
• 7:45 French Consumer Spending. Estimate 0.4%. Actual 0.1%
• 15:00 US New Home Sales. Estimate 575K
• 15:00 US Revised UoM Consumer Sentiment. Estimate 98.2

*All release times are GMT

* Key events are in bold

EUR/USD for Friday, December 23, 2016

EUR/USD December 23 at 10:00 GMT

Open: 1.0437 High: 1.0463 Low: 1.0434 Close: 1.0456

EUR/USD Technical

• EUR/USD has shown limited movement in the Asian and European session
• 1.0414 is providing support
• 1.0506 is the next resistance line

Further levels in both directions:

• Below: 1.0414, 1.0287, 1.0170 and 1.0028
• Above: 1.0506, 1.0616 and 1.0708
• Current range: 1.0414 to 1.0506

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged in the Friday session. Currently, long positions have a majority (57%), indicative of trader bias towards EUR/USD continuing to move upwards.

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.