EUR/USD – Euro in Holding Pattern as Fed Statement Looms

The euro is almost unchanged in the Wednesday session, continuing the lack of movement we’ve seen all week. EUR/USD is currently trading at the 1.10 line. On the economic front, German Import Prices and Consumer Climate were within expectations. Later in the day, the Federal Reserve will set the benchmark rate and issue a policy statement. As well, the US will release durable good orders and housing reports.

All eyes are on the Federal Reserve policy meeting. The Fed is not expected to raise the current benchmark rate of 0.25%, so the markets will be paying close attention to the policy statement, looking for clues about a possible hike later in the year. The markets have priced in a 51% chance of a rate hike before the end of the year, but that could quickly dip if the Fed sends a dovish message to the markets. The previous policy statement preceded the Brexit vote by just a week, so it will be interesting to see what Fed policymakers have to say about the British decision to leave the European Union. Solid US numbers in the past few weeks has fueled speculation about a possible rate hike, although it’s extremely unlikely the Fed will make a move at the Wednesday meeting. Although the US economy is in good shape, the fly in the ointment is inflation, which remains stuck at low levels, well short of the Fed’s target of around 2 percent. Fed policymakers will be hesitant to raise rates if inflation is not projected to point upwards.

Last week, the ECB followed the cue of the BoE and did not lower the benchmark rate of 0.00%. There were no dramatic remarks from ECB head Mario Draghi either. Draghi trotted out his well-worn message that the bank stood ready to act “using all the instruments available within its mandate”. The Eurozone economy remains soft and continues to grapple with very low inflation. The situation has become further complicated with the recent Brexit vote, as Britain, the second largest economy in Europe, will soon commence negotiations with the European Union over Britain’s exit from the club. Recent data in both the UK and Europe point to weaker consumer indicators, and upcoming numbers will allow the markets to begin to gauge the effect of Brexit on the Eurozone and British economies. In the wake of Brexit, the EU and Britain will have to hammer out and a new economic relationship and any developments with regard to the negotiations could clarify matters and lend some stability to the markets. So far, however, the only certainty is that negotiations will not commence anytime soon, as the British government has said that it will not invoke the exit mechanism (Article 50 of the Treaty of Lisbon) before the end of 2016.

EUR/USD Fundamentals

Wednesday (July 27)

• 6:00 German Import Prices. Estimate 0.5%. Actual 0.6%
• 6:00 GfK German Consumer Climate. Estimate 9.9. Actual 10.0
• 8:00 Eurozone M3 Money Supply. Estimate 5.0%. Actual 5.0%
• 8:00 Eurozone Private Loans. Estimate 1.7%. Actual 1.7%
• Tentative – German 30-year Bond Auction
• 12:30 US Core Durable Goods Orders. Estimate 0.3%
• 12:30 US Durable Goods Orders. Estimate -1.1%
• 14:00 US Pending Home Sales .Estimate 1.9%
• 14:30 US Crude Oil Inventories. Estimate -2.1M
• 18:00 US FOMC Statement
• 18:00 US Federal Funds Rate. Estimate <0.50%

Upcoming Key Events

Thursday (July 28)

• 12:30 US Unemployment Claims. Estimate 261K

* Key releases are in bold

*All release times are GMT

EUR/USD for Wednesday, July 27, 2016

EUR/USD July 27 at 8:10 GMT

Open: 1.0987 High: 1.1004 Low: 1.0981 Close: 1.1000

EUR/USD Technical

• EUR/USD has shown limited movement in the Asian and European sessions
•  1.1054 is a weak resistance line
•  1.0925 is providing support

Further levels in both directions:

• Below: 1.0925, 1.0821 and 1.0708
• Above: 1.1054, 1.1150, 1.1278 and 1.1376
• Current range: 1.0925 to 1.1054

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Wednesday, consistent with the lack of movement from EUR/USD. Currently, short positions have a small majority (52%), indicative of slight trader bias towards EUR/USD breaking out and moving downwards.

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.