EUR/USD – Euro Jumps to 8-Week Highs, Markets Brace for May’s Brexit Speech

EUR/USD is showing strong gains in the Tuesday session. Currently, the pair is trading at the 1.07 line. On the release front, German and Eurozone ZEW Economic Sentiment reports both improved, but missed their estimates. The markets are keeping a close eye on a crucial speech from Prime Minister Theresa May, who is expected to confirm that the Britain will leave the European Union’s single market. The US will release the Empire State Manufacturing Index, with the indicator expected to dip to 8.1 points.

Anxious investors on both sides of the Channel are bracing for Prime Minister May’s speech later on Tuesday, in which she will provide more details on the government’s Brexit strategy. May is expected to announce that Britain will assume control over its  borders and immigration policy, while acknowledging that this will mean an end to Britain’s access to the EU’s single market. She will likely reiterate that Britain is not looking for a “half-in, half out” relationship with the EU, but what new arrangement will be put into place remains unclear. Since the Brexit vote in June, European leaders have argued that Britain cannot have access to the single market without allowing freedom of movement, essentially saying that the Brits cannot have their cake and eat it too. With May’s speech likely to signal a “hard Brexit”, we could see the pound lose ground following the speech.

ZEW expectations improved in January, although the markets were hoping for more. German ZEW Economic Sentiment improved to 16.6, shy of the forecast of 18.9. Eurozone ZEW Economic Sentiment jumped to 23.2 points, short or the estimate of 24.2. These indicators point to optimism about economic conditions from investors and analysts.  The ECB will hold its first policy meeting in the New Year on Thursday. Recent numbers from the Eurozone have been encouraging, as growth and inflation numbers have shown improvement. Still, it’s doubtful that the ECB will start the year with significant changes to monetary policy, as plenty of slack remains the Eurozone economy. In December, the bank extended its asset-purchase program until December 2017, but also cut the size of the program from EUR 80 billion to 60 billion. These parameters are unlikely to change until policymakers see a significant improvement in growth and inflation numbers.

May to Detail Out 12 Point Brexit Plan

EUR/USD Fundamentals

Tuesday (January 17)

• 4:00 Italian Trade Balance. Estimate 3.84B. Actual 4.20B
• 5:00 German ZEW Economic Sentiment. Estimate 18.9. Actual 16.6
• 5:00 Eurozone ZEW Economic Sentiment. Estimate 24.2. Actual 23.2
• 5:36 French Governor Budget Balance. Estimate -93.3B
• 8:30 US Empire State Manufacturing Index. Estimate 8.1
• 8:45 US FOMC Member William Dudley Speaks
• 10:00 US Treasury Secretary Jack Lew Speaks
• 10:00 US FOMC Member Lael Brainard Speaks

*All release times are GMT

*Key events are in bold

EUR/USD for Tuesday, January 17, 2017

EUR/USD January 17 at 6:45 GMT

Open: 1.0602 High: 1.0719 Low: 1.0600 Close: 1.0705

EUR/USD Technical

• EUR/USD has posted gains in the Asian and European sessions
• 1.0616 has switched to a support line following strong gains by EUR/USD on Tuesday
• 1.0708 is under strong pressure in resistance. It could break during the Tuesday session

Further levels in both directions:

• Below: 1.0616, 1.0506 and 1.0414
• Above: 1.0708, 1.0873 and 1.0985
• Current range: 1.0616 to 1.0708

OANDA’s Open Positions Ratio

EUR/USD ratio is showing limited change in the Tuesday session. Currently, short positions have a slim majority, indicative of slight trader bias towards EUR/USD continuing to move higher.

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