EUR/USD – Euro Higher as Eurozone CPI Matches Forecast

The euro has posted slight gains in the Wednesday session, in what continues to be an uneventful week f0r EUR/USD. Currently, the pair is trading at 1.2451, up 0.39% on the day. On the release front, German Retail Sales plunged 1.9%, much weaker than the estimate of -0.3%. This marked the strongest decline since June 2015. On the inflation front, Eurozone CPI Flash Estimate, ticked lower to 1.3%, the lowest level since July 2017. In the US, there are a host of key events. ADP Nonfarm Employment Change is expected to slow to 186 thousand. The Federal Reserve will release a monetary policy statement, with the markets expecting the benchmark rate to remain unchanged at a range between 1.25%-1.50%. On Thursday, Germany and the eurozone will release Manufacturing PMIs, while the US publishes unemployment claims and the ISM Manufacturing PMI.

Inflation levels in the eurozone pointed upwards in 2017, but softened in January. Eurozone CPI Flash Estimate came in at 1.3%, as inflation remains well below the ECB target of around 2 percent. Lower inflation gives the ECB some breathing room regarding its stimulus program (QE), which is scheduled to terminate in September. A stronger eurozone economy has raised speculation that the ECB could wind up QE and shift to normative policy, and perhaps even raise interest rates. However, ECB policymakers have been cautious, trying to keep in check any market enthusiasm about a major change in policy. Last week, ECB President Mario Draghi went as far as saying that QE could be extended or increased if necessary.

All eyes are on the Federal Reserve, which will make a rate announcement on Wednesday, the final one under Janet Yellen’s watch. The tone of the rate statement could affect investor sentiment and have an impact on the currency markets. It’s a virtual certainty that the Fed will leaves rates unchanged this time around, although it’s likely that the Fed will raise rates by a quarter-point at the March meeting. Yellen will make way for Jerome Powell, who takes over as chair in early February. Powell is expected to hold the course on monetary policy, which was marked by small, incremental interest rates in order to keep the robust US economy from overheating.

EUR/USD Fundamentals

Wednesday (January 31)

• 2:00 German Retail Sales. Estimate -0.3%. Actual -1.9%
• 2:45 French Preliminary CPI. Estimate -0.3%. Actual -0.1%
• 3:00 Spanish Flash CPI. Estimate 0.9%. Actual 0.5%
• 3:55 German Unemployment Change. Estimate -16K. Actual -25K
• 4:00 Italian Monthly Unemployment Rate. Estimate 10.9%. Actual 10.8%
• 5:00 Eurozone CPI Flash Estimate. Estimate 1.3%. Actual 1.3%
• 5:00 Eurozone Core CPI Flash Estimate. Estimate 1.0%. Actual 1.0%
• 5:00 Eurozone Unemployment Rate. Estimate 8.7%. Actual 8.7%
• 8:15 US ADP Nonfarm Employment Change. Estimate 186K
• 8:30 US Employment Cost Index. Estimate 0.6%
• 9:45 US Chicago PMI. Estimate 64.2
• 10:00 US Pending Home Sales. Estimate 0.5%
• 10:30 US Crude Inventories. Estimate 0.1M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.50%

Thursday (February 1)

• 3:55 German Final Manufacturing PMI. Estimate 61.2
• 4:00 Eurozone Final Manufacturing PMI. Estimate 59.6
• 8:30 US Unemployment Claims. Estimate 237K
• 10:00 ISM Manufacturing PMI. Estimate 58.7

*All release times are GMT

*Key events are in bold

EUR/USD for January 31, 2018

EUR/USD for January 31 at 6:00 EDT

Open: 1.2403 High: 1.2463 Low: 1.2396 Close: 1.2446

EUR/USD Technical

EUR/USD edged higher in the Asian session and is steady in European trade

• 1.2357 is providing support
• 1.2481 is the next line of resistance

Further levels in both directions:

• Below: 1.2357, 1.2286, 1.2200 and 1.1961
• Above: 1.2481, 1.2569 and 1.2677
• Current range: 1.2357 to 1.2481

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement this week. Currently, short positions have a majority (59%), indicative of EUR/USD reversing directions and moving 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.