EUR/USD – Euro Jumps After Fed Sounds Dovish, ECB Decision Next

The euro has paused in the Thursday session, after posting strong gains on Wednesday. Currently, EUR/USD is trading at 1.1824, down 0.01% on the day. In economic news, it’s a busy day in the eurozone and the US. Manufacturing PMIs beat their estimates in France, Germany and the eurozone, with strong readings of 59.3, 63.3, and 60.6 points respectively. On the services side, Services PMIs beat the estimates in Germany and the eurozone, but fell short in France. Later in the day, the ECB is expected to maintain interest rates at a flat 0.00%. In the US, consumer spending indicators are expected to improve in November, with Core Retail Sales and Retail Sales forecast at 0.6% and 0.3%, respectively. On Friday, the eurozone releases trade surplus and the US publishes Empires State Manufacturing Index.

There were no surprises from the Federal Reserve, which raised rates on Wednesday, bringing the benchmark rate to a range between 1.25% and 1.50%. This marked the third rate hike in 2017, testimony to the strong performance of the US economy. The Fed statement was optimistic about the economy, noting that the labor market “remained strong”. It also lowered its unemployment forecast in 2018 from 4.1% to 3.9%, and revised growth for 2018 from 2.1% to 2.5%. Despite this rosy prognosis, the dollar was broadly down after the announcement. Why? One reason is the sore point in the economy – inflation. The Fed has not changed its September forecast for rate hikes next year, with the Fed dot plot indicating that three rate hikes are projected for 2018. This disappointed some investors who would like to see four increases next year. As well, the rate statement said that the Fed did not expect the tax reform legislation to have any long-term effect on the economy, contradicting White House claims that the legislation would trigger substantial growth in the economy.

Dollar Drifts on Dovish Fed Hike

The markets are keeping a close eye on the ECB, which will set interest rates later on Thursday. The ECB is widely expected to maintain current rates, so investors will be focusing on the follow-up press conference with ECB President Mario Draghi. If the ECB sends out an optimistic message about the economy, the euro rally could resume. Meanwhile, German indicators continue to sparkle. Manufacturing PMI hit a new record, climbing to 63.3 points. The PMI Composite Output Index, which measures business activity, improved to 58.7, its highest level since 2011. A robust German economy has been the locomotive for the eurozone, which has rebounded in 2017 with stronger growth and lower unemployment.

Does Draghi Have One More Treat Up His Sleeve?

EUR/USD Fundamentals

Thursday (December 14)

• 2:45 French Final CPI. Estimate 0.1%. Actual 0.1%
• 3:00 French Flash Manufacturing PMI. Estimate 57.2. Actual 59.3
• 3:00 French Flash Services PMI. Estimate 59.8. Actual 59.4
• 3:30 German Flash Manufacturing PMI. Estimate 62.1. Actual 63.3
• 3:30 German Flash Services PMI. Estimate 54.6. Actual 55.8
• 4:00 Eurozone Flash Manufacturing PMI. Estimate 59.8. Actual 60.6
• 4:00 Eurozone Flash Services PMI. Estimate 56.0. Actual 56.5
• Tentative – Spanish 10-year Bond Auction
• 7:45 Eurozone Minimum Bid Rate. Estimate 0.00%
• 8:30 ECB Press Conference
• 8:30 US Core Retail  Sales. Estimate 0.6%
• 8:30 US Retail  Sales. Estimate 0.3%
• 8:30 US Import Prices. Estimate 0.7%
• 8:30 US Unemployment Claims. Estimate 237K
• 9:45 US Flash Manufacturing PMI. Estimate 54.0
• 9:45 US Flash Services PMI. Estimate 54.8
• 10:00 US Business Inventories. Estimate -0.1%
• 10:30 US Natural Gas Storage. Estimate -55B

Friday (December 15)

• 5:00 Eurozone Trade Balance. Estimate 24.4B
• 8:30 US Empire State Manufacturing Index. Estimate 18.8

*All release times are GMT

*Key events are in bold

EUR/USD for Thursday, December 14, 2017

EUR/USD for December 14 at 6:25 EDT

Open: 1.1826 High: 1.1844 Low: 1.1811 Close: 1.1824

EUR/USD Technical

In the Asian session, EUR/USD posted slight gains but then retracted. The pair is showing limited movement in European trade

• 1.1777 has switched to a support role after strong gains by EUR/USD on Wednesday
• 1.1876 is the next resistance line

Further levels in both directions:

• Below: 1.1777, 1.1657, 1.1574 and 1.1434
• Above: 1.1876, 1.1961 and 1.2092
• Current range: 1.1777 to 1.1876

OANDA’s Open Positions Ratio

EUR/USD is showing slight movement towards short positions. Currently, short positions have a majority (57%), indicative of 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.