EUR/USD – Energized Euro Hits 11-Month High on Draghi Remarks

The euro has posted slight gains in the Wednesday session, adding to sharp gains on Tuesday. Currently, EUR/USD is trading at 1.1370. On the release front, ECB President Mario Draghi will speak again before the ECB Forum of Central Bankers. Will Draghi perform an encore and push the euro even higher? In the US, today’s key release is Pending Home Sales, which is expected to gain 0.9%. On Thursday, Germany releases Preliminary CPI and the US will publish Final GDP and unemployment claims.

The euro sparkled on Tuesday, jumping 1.8%. EUR/USD is closing in on the 1.14 line and hit a high of 1.1388 earlier in the day, its highest level in two months. The currency jumped as investors gave a thumbs up to Mario Draghi, who addressed the ECB Forum. Draghi acknowledged that economic indicators were showing a broadening recovery in the eurozone, and put a positive spin on inflation, as he noted that “deflationary forces have been replaced by reflationary ones”. Draghi defended the bank’s loose accommodative policy, saying that it had pushed inflation higher, but stimulus was needed until inflation becomes “durable and self-sustaining”. Draghi’s message to the markets and his critics is that “we’re on the right path, but please show some patience”. Germany, the eurozone’s largest economy, wants to see a tighter policy, which is a better fit for the vibrant German economy. Clearly however, the ECB under Draghi’s stewardship has no intentions of altering current policy until inflation moves closer to the ECB’s target of 2 percent.

Investors are casting a nervous glance at Thursday, as the US releases Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the same estimate for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Last week, it was the turn of construction numbers to disappoint, as Housing Starts and Building Permits both missed expectations. Consumer spending has also been softer than expected, and if Final GDP falls short of the modest estimate of 1.2%, the dollar could respond with losses.

Caught Flat Footed

Hawkish Draghi

EUR/USD Fundamentals

Wednesday (June 28)

• 2:00 German Import Prices. Estimate -0.6%. Actual -1.0%
• 4:00 Eurozone M3 Money Supply. Estimate 5.0%. Actual 5.0%
• 4:00 Eurozone Private Loans. Estimate 2.5%. Actual 2.6%
• 5:00 Italian Preliminary CPI. Estimate 0.1%. Actual -0.1%
• 8:30 US Goods Trade Balance. Estimate -66.2B
• 8:30 US Preliminary Wholesale Inventories. Estimate 0.2%
• 9:30 ECB President Mario Draghi Speaks
• 10:00 US Pending Home Sales. Estimate 0.9%
• 10:30 US Crude Oil Inventories. Estimate -2.1M

Thursday (June 29)

• All Day – German Preliminary CPI. Estimate 0.0%
• 8:30 US Final GDP. Estimate 1.2%
• 8:30 US Unemployment Claims. Estimate 241K

*All release times are EDT

*Key events are in bold

EUR/USD for Wednesday, June 28, 2017

EUR/USD Wednesday, June 28 at 6:25 EDT

Open: 1.1339 High: 1.1388 Low: 1.1330 Close: 1.1360

EUR/USD Technical

EUR/USD has edged higher in the Asian and European sessions

• 1.1242 has some breathing room in support
• 1.1366 was tested earlier in resistance and is a weak 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 has shown gains in short positions, consistent with sharp gains by EUR/USD on Tuesday. Currently, short positions have a majority (71%), indicative of EUR/USD reversing directions and moving lower.

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