EUR/USD – Euro Edges Higher as Eurozone CPI Matches Estimate

The euro has posted small gains on Thursday, as EUR/USD trades just above the 1.13 line. On the economic front, Eurozone CPI posted a gain of 0.3%, matching the forecast. Eurozone Core CPI gained 0.9%, also matching the forecast. Later in the day, the ECB releases the minutes of its July policy meeting. In the US, there are two key events on the calendar – the Philly Fed Manufacturing Index and Unemployment Claims.

Eurozone inflation looked a bit better in July, as Final CPI rose 0.2%, up from 0.1% in June. This marked the strongest reading in five months, underscoring persistent weakness in inflation levels on the continent. Earlier in the week, Germany and the Eurozone released ZEW Economic Sentiment reports, but the market forecasts missed on both accounts. The German indicator posted a small gain of 0.5 points, well short of the forecast of 2.1 points. The Eurozone report was surprisingly strong, coming in at 4.6 points. This crushed the estimate of -6.3 points. The good news is that both indicators rebounded nicely in August after recording declines in July. At the same time, the current readings pale in comparison to the June readings, which hovered around the 20-point level. There are serious concerns that third quarter data, which covers the period immediately after the Brexit referendum vote in late June, will point to weaker growth in the Eurozone. This could put more pressure on the ECB to step in and adopt further easing measures in order to kick-start the economy and boost inflation.

The markets may be confused about whether the Federal Reserve is planning a rate hike, and it seems that the lack of clarity extends to Fed policymakers as well. The Fed minutes from the July meeting indicated that FOMC members are divided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%. This debate will need to be resolved one way or another, as the Fed must make a rate decision next month. Clearly, policymakers will be swayed by economic data, particularly employment and inflation numbers. The news remains bleak on the latter front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. Recent data is pointing in all directions, which explains why the Fed is divided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers. Bottom line? A September hike is virtually off the table, while the odds of a December hike are pegged at 50/50.

EUR/USD Fundamentals

Thursday (August 18)

• 9:00 Eurozone Final CPI. Estimate 0.2%. Actual 0.2%
• 9:00 Eurozone Core CPI. Estimate 0.9%. Actual 0.9%
• 11:30 ECB Monetary Policy Meeting Accounts
• 12:30 US Philly Fed Manufacturing Index. Estimate 1.4
• 12:30 US Unemployment Claims. Estimate 269K
• 14:00 US CB Leading Index. Estimate 0.3%
• 14:05 FOMC Member William Dudley Speaks
• 14:30 US Natural Gas Storage. Estimate 26B

* Key releases are in bold

*All release times are GMT

EUR/USD for Thursday, August 18, 2016

EUR/USD August 18 at 9:50 GMT

Open: 1.1299 High: 1.1332 Low: 1.1294 Close: 1.1320

EUR/USD Technical

• EUR/USD has showed limited movement in the Asian and European sessions
•  1.1278 is a weak support line
•  There is resistance at 1.1376

Further levels in both directions:

• Below: 1.1278, 1.1150 and 1.1054
• Above: 1.1376, 1.1467 and 1.1534
• Current range: 1.1278 to 1.1376

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Thursday, consistent with the lack of movement from EUR/USD. Currently, short positions have a strong majority (63%), indicative of trader bias towards EUR/USD breaking out and moving to lower levels.

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.