EUR/USD – Euro Takes Pause After Rally, US Payrolls Ahead

EUR/USD has inched higher in the Friday session, as the pair trades at the 1.06 line. The euro has climbed 1.0% since Wednesday and is close to one-week highs. On the release front, German numbers pointed downwards. Factory Orders dropped 2.5%, matching the forecast. Retail Sales declined 1.8%, weaker than the estimate of -0.8%. Eurozone Retail Sales came in at -0.4%, shy of the estimate of -0.3%.In the US, employment numbers are the focus, with three key events – Nonfarm Payrolls, Average Hourly Earnings and Unemployment Rate. So traders should be prepared for possible volatility in the currency markets in the North American session.

The Federal Reserve minutes from the December meeting were cautious in tone, with Fed policymakers essentially saying that monetary policy in the coming months will be dictated in large part by the economic platform of the incoming Trump administration. FOMC members are concerned about higher inflation levels, given the “prospects for more expansionary fiscal policies in the coming years”. This is a clear reference to president-elect Trump’s plans to increase fiscal spending and cut taxes, which would likely result in higher inflation, something the US hasn’t had to deal with for years. Still, policymakers appear unchanged in their view that gradual rate hikes remains an appropriate monetary policy. The Fed members acknowledged that there is “considerable uncertainty” regarding future fiscal and economic programs. Many analysts are predicting another rate hike in June, but this could of course change, depending on the performance of the US economy in the first half of 2017.

As the largest economy in the Eurozone, Germany’s economic indicators are considered bellwethers of the Eurozone economy. The first major German events of 2017 were disappointing. Factory Orders and Retail Sales for November both posted sharp declines. Still, the Eurozone showed decent growth in the fourth quarter of 2016, and inflation, which has been mired at low levels for years, is showing signs of improvement. CPI Flash Estimate climbed to 1.1% in December, up from 0.6% in the November reading. The last time the indicator cracked the 1.0% level was in August 2013.

Jobs Report Key as Fed Eyes Faster Tightening

EUR/USD Fundamentals

Friday (January 6)

• 2:00 German Factory Orders. Estimate -2.5%. Actual -2.5%
• 2:00 German Retail Sales. Estimate -0.8%. Actual -1.8%
• 2:45 French Trade Balance. Estimate -4.8B. Actual -4.4B
• 5:00 Eurozone Retail Sales. Estimate -0.3%. -0.4%
• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Change. Estimate 175K
• 8:30 US Unemployment Change. Estimate 4.7%
• 8:30 US Trade Balance. Estimate -42.2B
• 10:00 US Factory Orders. Estimate -2.1%
• 12:15 US FOMC Charles Evans Speech

*All release times are GMT

*Key events are in bold

EUR/USD for Friday, January 6, 2017

EUR/USD January 6 at 10:10 GMT

Open: 1.0604 High: 1.0609 Low: 1.0574 Close: 1.0597

EUR/USD Technical

• EUR/USD has posted limited movement in the Asian and European sessions
• 1.0506 has some breathing room in support following strong gains by EUR/USD earlier in the week
• 1.0616 is a weak resistance line

Further levels in both directions:

• Below: 1.0506, 1.0414, 1.0287 and 1.0170
• Above: 1.0616, 1.0708 and 1.0873
• Current range: 1.0506 to 1.0616

OANDA’s Open Positions Ratio

EUR/USD ratio is close to an even split between long and short positions. This is indicative of a lack of trader bias as to what direction EUR/USD will take next.

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.