EUR/USD – Euro Calm as Investors Look for Cues

The euro continues to show little movement this week, and has inched higher in the Wednesday session. Currently, EUR/USD is trading at 1.1140. On the release front, there are no major events in the eurozone, so it could remain a quiet day for the pair. The US will release Existing Home Sales, which is expected to dip to 5.54 million. As well, the weekly Crude Oil Inventories will be published, with a forecast of -1.2 million barrels. On Thursday, the US releases unemployment claims.

The well-respected German BDI Federation of Industry added its voice to the chorus, saying that Germany’s economic output would increase by 1.5% this year. At the same time, the BDI counseled caution, noting that the economy had been buoyed by a weaker euro, lower oil prices and the ECB’s accommodative monetary policy. All three of these are ‘external factors’, in the sense that Germany has limited influence on them, and a significant change in any one factor could hamper the country’s economy. In the meantime, a growing global demand for German products has boosted the export sector, and relieved concerns about President Trump’s protectionist ‘America first’ stance.

The Federal Reserve has now raised twice this year, each time by 25 basis points. The Fed has hinted at one more rate hike in the second half of 2017, and the markets have circled December as the most likely date for a rate move. The CME Group has pegged the odds of a September hike at just 13%, compared to 18% a week ago. However, the odds for a December increase are at 49%, and this could increase if Fed policymakers continue to wax positive about the economy. Earlier this week, Federal Reserve of New York President Charles Dudley continued the upbeat message, cautioning the Fed against halting its current tightening cycle. Dudley said that the tight labor market should lead to higher wages, which in turn would push inflation to the Fed’s target of 2.0%. The markets like what they are hearing – not just the positive spin on the economy, but also that the Fed has signaled that it plans to reduce the bloated balance sheet of $4.2 trillion.

Is the US headed for another weak disappointing quarter? Last week ended on a sour note, as construction and consumer confidence reports missed expectations. Building Permits dropped to 1.17 million, its lowest level since August 2016. Housing Starts were also week, as the reading of 1.09 million marked the lowest since November 2016. There is concern that the soft construction numbers could weigh on second-quarter GDP. There was more bad news from UoM Consumer Sentiment, which dipped to 94.7 in May, marking a 7-month low. This is significant, as it is the indicator’s lowest reading since President Trump took office, and points to consumer unease with how the US economy is being handled. There are troubling signs that the June UoM report could be even lower, coming after the Comey testimony which has damaged Trump’s credibility even further. The labor market remains strong, but this has not translated into stronger consumer spending, which accounts for some two-thirds of economic growth.

Oil Spill Sends Stocks and Yields Lower, Dollar Steady

EUR/USD Fundamentals

Wednesday (June 21)

• 5:35 German 30-y Bond Auction. Estimate 1.02%
• 10:00 US Existing Home Sales. Estimate 5.54M
• 10:30 US Crude Oil Inventories. Estimate -1.2M

Thursday (June 22)

• 8:30 US Unemployment Claims. Estimate 241K

*All release times are EDT

*Key events are in bold

EUR/USD for Wednesday, June 21, 2017

EUR/USD Wednesday, June 21 at 6:00 EDT

Open: 1.1134 High: 1.1150 Low: 1.1127 Close: 1.1144

EUR/USD Technical

EUR/USD was flat in the Asian session and has posted small gains in European trade

• 1.1122 is providing support
• 1.1242 is the next resistance line

Further levels in both directions:

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

OANDA’s Open Positions Ratio

EUR/USD ratio is showing slight movement towards long positions. Currently, short positions have a majority (67%), indicative of EUR/USD reversing directions and moving lower.

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