EUR/USD – Euro Inches Lower, Euro CPI Contracts

EUR/USD has posted small losses on Tuesday and is trading at 1.1130. On the release front, it’s a busy day in the Eurozone and the US. Eurozone CPI Flash Estimate posted a small decline of 0.1%. In Germany, Retail Sales declined 0.9%, while Unemployment Claims dropped by 11 thousand. Over in the US, today’s key release is CB Consumer Confidence. The markets are expecting the indicator to improve to 96.1 points. On Wednesday, the US releases ISM Manufacturing PMI.

German numbers have started the week with mixed results. Retail Sales, the primary gauge of consumer spending, posted a third straight decline in April, coming in at -0.9%. The markets had expected a gain of 1.0%. Unemployment Claims impressed with a drop of 11 thousand, well below the estimate of a decline of 4 thousand. On the inflation front, Eurozone CPI Flash Estimate posted a fourth consecutive contraction, coming in at -0.1%. Eurozone Core CPI Flash Estimate remained unchanged at 0.8%. Both indicators matched expectations. On the employment front, the Eurozone unemployment rate came in at 10.2%, matching the estimate.

US indicators wrapped up last week on a positive note. Preliminary GDP, which can be viewed as an economic report card, posted a gain of 0.8%, matching the forecast. This was an improvement above Advanced GDP, which came in at 0.5%. Still, the economy slowed down considerably compared to the fourth quarter of 2015. The export sector has been hurt by the strong US dollar and weak global demand. Oil prices remain low, which has taken a sharp toll on the oil industry. Elsewhere, the UoM Consumer Sentiment report improved in April, climbing to 94.7 points. This marked the indicator’s highest level in 11 months, although it was short of the estimate of 95.7 points. The dollar responded positively to these releases on Friday, gaining about 80 points against the euro.

Speculation continues to grow that the Federal Reserve may soon raise rates for the first time this year. The Fed minutes and comments from Fed chair Janet Yellen have renewed market sentiment that the Fed may press the rate trigger this summer, and this has bolstered the US dollar. The minutes were more hawkish than expected, resulting in strong volatility in the currency markets. Odds of a rate hike in June have sharply increased, but the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. On Monday, FOMC member John Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between the hawkish message some FOMC members are sending out and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

EUR/USD Fundamentals

Tuesday (May 31)

• 6:00 German Retail Sales. Estimate +1.0%. Actual -0.9%
• 6:45 French Preliminary CPI. Estimate 0.3%. Actual 0.4%
• 7:55 German Unemployment Change. Estimate -4K. Actual -11K
• 8:00 Eurozone M3 Money Supply. Estimate 5.0%. Actual 4.6%
• 8:00 Italian Monthly Unemployment Rate. Estimate 11.3%. Actual 11.7%
• 8:00 Eurozone Private Loans. Estimate 1.5%. Actual 1.5%
• 9:00 Eurozone CPI Flash Estimate. Estimate -0.1%. Actual -0.1%
• 9:00 Eurozone Core CPI Flash Estimate. Estimate 0.8%. Actual 0.8%
• 9:00 Italian Preliminary CPI. Estimate 0.2%. Actual 0.3%
• 9:00 Eurozone Unemployment Rate. Estimate 10.2%. Actual 10.2%
• 12:30 US Core PCE Price Index. Estimate 0.2%
• 12:30 US Personal Spending. Estimate 0.7%
• 12:30 US Personal Income. Estimate 0.4%
• 13:00 US S&P/CS Composite-20 HPI. Estimate 5.1%
• 13:45 US Chicago PMI. Estimate 50.8
• 14:00 US CB Consumer Confidence. Estimate 96.1

Wednesday (June 1)

14:00 US ISM Manufacturing PMI. Estimate 50.5

*All release times are GMT

EUR/USD for Tuesday, May 31, 2016

EUR/USD May 31 at 9:15 GMT

Open: 1.1148 Low: 1.1121 High: 1.1155 Close: 1.1130

EUR/USD Technical

• EUR/USD posted slight losses in the Asian session. The pair is steady in European trade
• 1.1172 is a weak resistance line
• 1.1054 is providing support

Further levels in both directions:

• Below: 1.1054, 1.0909 and 1.0821
• Above: 1.1172, 1.1278, 1.1378 and 1.1495
• Current range: 1.1054 to 1.1172

OANDA’s Open Positions Ratio

EUR/USD ratio is showing slight movement towards short positions on Tuesday. Short positions have a slight majority (47%), indicative of trader bias towards EUR/USD 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.