EUR/USD – Euro Punches Above 1.15 on Trump Troubles

The euro has posted gains in the Tuesday session. Currently, EUR/USD is trading at 1.1560. On the release front, German ZEW Economic Sentiment dropped to 17.5, short of the estimate of 17.8 points. The Eurozone ZEW Economic Sentiment also softened, coming in at 35.6 points. This reading missed the forecast of 37.2 points. There are no major US events on the schedule. On Wednesday, the focus will be on construction data, with the release of Building Permits and Housing Starts.

The euro has pushed above the 1.15 line and is trading at its highest levels since May 2016. The currency received a boost on Tuesday, following the news that the Republicans will not attempt to advance their health care proposal before Congress takes a recess in August. This decision is a major setback to President Trump, who has tried to pass a health care bill which would replace Obamacare, but opposition from some Republican lawmakers has meant that the White House does not have the votes to pass such a bill. Despite Republican control of both houses of Congress, no major legislation has been passed since Trump took over as president 6 months ago. There is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending.

Inflation levels in the US have been stubbornly low, despite a generally strong economy and a tight labor market. Still, the Federal Reserve remains convinced that it’s only a matter of time before inflation levels move higher. This stance was reiterated by Fed Chair Janet Yellen last week, as she testified before congressional and senate committees. With the labor market close to capacity and the unemployment rate at just 4.4%, economists are puzzled why this hasn’t translated into higher inflation. In her testimony, Yellen admitted that the Fed was at a loss to explain the lack of inflation, but insisted that it was “premature to conclude that the underlying inflation trend is falling well short of 2 percent”, and that with a strong labor market “the conditions are in place for inflation to move up”. Is Yellen’s argument just wishful thinking? The markets aren’t buying in, with a rate hike considered extremely unlikely in September. As for a December increase, the odds are currently at just 47%, according to the CME Group. Consumer spending and inflation numbers were soft in June, and the disappointing numbers will do little to improve market skepticism about one last rate hike this year.

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EUR/USD Fundamentals

Tuesday (July 18)

• 5:00 German ZEW Economic Sentiment. Estimate 17.8. Actual 17.5
• 5:00 Eurozone ZEW Economic Sentiment. Estimate 37.2. Actual 35.6
• 8:30 US Import Prices. Estimate -0.2%
• 10:00 US NAHB Housing Market Index. Estimate 67
• 16:00 US TIC Long-Term Purchases. Estimate 20.3B

Wednesday (July 19)

• 8:30 US Building Permits. Estimate 1.20M
• 8:30 US Housing Starts. Estimate 1.16M

*All release times are EDT

*Key events are in bold

EUR/USD for Tuesday, July 18, 2017

EUR/USD Tuesday, July 18 at 6:00 EDT

Open: 1.1473 High: 1.1538 Low: 1.1471 Close: 1.1558

EUR/USD Technical

EUR/USD has posted gains in the Asian and European sessions and broken through two resistance lines

• 1.1534 has switched to a support role following gains by EUR/USD
• 1.1616 is the next resistance line

Further levels in both directions:

• Below: 1.1534, 1.1465, 1.1366 and 1.1242
• Above: 1.1616, 1.1712 and 1.1866
• Current range: 1.1534 to 1.1616

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Tuesday session. Currently, short positions have a majority (69%), indicative of EUR/USD reversing directions and moving lower.

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