EUR/USD – Euro Yawns Ahead of ECB Rate Meeting

The euro continues to have an uneventful week. EUR/USD has inched lower in the Wednesday session, as the pair is currently trading at 1.1270. On the release front, German Factory Orders dropped 2.1%, much weaker than the estimate of a 0.2% decline. It’s a quiet day in the US, highlighted by Crude Oil Inventories. The markets are expecting a decline of 3.1 million barrels, which would mark a ninth consecutive decline. On Thursday, the ECB releases its benchmark rate, which is expected to remain at a flat 0.00%. The US will release unemployment claims, with an estimate of 241 thousand.

If lackluster movement from the euro is a reliable indication, the markets are not expecting any dramatic moves from Mario Draghi & Co. at Thursday’s policy meeting. The central bank has held the benchmark rate at a flat 0.0% since March 2016, and no change is expected on Thursday. Still, with the euro-area economy showing improved growth in 2017, the markets would like to see the ECB at least acknowledge that the economic picture has brightened, and will be looking for a more hawkish tone from the rate statement or the follow-up comments from ECB head Mario Draghi. The ECB has been reluctant to taper its asset-purchase program or raise interest rates, despite grumbling from economic powerhouse Germany, which wants a tighter monetary policy out of Brussels. The markets will be poring over the rate statements and Draghi’s follow-up comments, looking for any nuances which are hawkish in tone. If this occurs, the euro could gain ground.

The Federal Reserve holds its policy meeting next week, and the markets are widely expecting the Fed to raise rates for the second time in 2017. The odds of a rate increase stood at 96%, but the odds have dipped to 91%, in response to the dismal Nonfarm Payrolls report on Friday. An increase in interest rates represents a vote of confidence in the US economy, but the Fed continues to have some concerns. Inflation remains stubbornly low, despite a labor market that remains close to capacity. Fed policy makers are also scratching their heads over soft consumer spending, which has not kept pace with high levels of consumer confidence. As for additional rate hikes in the second half of 2017, the markets remain skeptical, with the odds of a September rate hike at just 22%. However, stronger data in the third quarter will likely raise the likelihood a September hike.

Dollar Drifts ahead of Super Thursday

EUR/USD Fundamentals

Wednesday (June 7)

• 2:00 German Factory Orders. Estimate -0.2%. Actual -2.1%
• 4:00 Italian Retail Sales. Estimate +0.2%. Actual -0.1%
• 10:30 US Crude Oil Inventories. Estimate -3.1M
• 15:00 US Consumer Credit. Estimate 15.2B

Thursday (June 8)

• 7:45 ECB Minimum Bid Rate. Estimate 0.00%
• 8:30 US ECB Press Conference
• 8:30 US Unemployment Claims. Estimate 241K

*All release times are EDT

*Key events are in bold

EUR/USD for Wednesday, June 7, 2017

EUR/USD Wednesday, June 7 at 6:30 EDT

Open: 1.1277 High: 1.1282 Low: 1.1246 Close: 1.1273

EUR/USD Technical

EUR/USD showed limited movement in the Asian session. In European trade, the pair edged lower but has recovered

• 1.1242 continues to provide support
• 1.1366 is the next resistance line

Further levels in both directions:

• Below: 1.1242, 1.1122, 1.0985 and 1.0873
• Above: 1.1366, 1.1465 and 1.1534
• Current range: 1.1242 to 1.1366

OANDA’s Open Positions Ratio

EUR/USD ratio remains unchanged this week. In the Wednesday session, short positions have a majority (70%), indicative of EUR/USD continuing to move 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.