EUR/USD – Euro Kicks off Week With a Whimper

EUR/USD is flat on Monday, as the pair trades at 1.0870 in the European session. Taking a look at economic news, it’s a quiet start to the week, with three minor releases out of the Eurozone. There were no surprises from German inflation numbers, as PPI posted a decline of 0.2%, matching the forecast. There are no US releases on Monday, but the markets will be keeping a close look at GDP, which will be released on Tuesday.

After months of speculation, the Federal Reserve raised interest rates by 0.25% last week, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and EUR/USD did not show too much volatility last week, given the magnitude of a US rate hike for the first time in almost 10 years.

The rate hike of just 0.25 percent is expected to have limited economic impact, but the psychological aspect of the rate move cannot be overemphasized, as the Fed has given the US economy a critical vote of confidence, and has indicated that additional rates are likely over the course of 2016. The Fed’s strategy contrasts sharply with the bungled approach of Mario Draghi at the ECB, who hinted that the ECB would take significant easing steps at its December meeting, but failed to deliver as the ECB did little more than extend the current QE program for another six months. This led to complete turmoil in the markets, resulting in the euro surging by as much as 500 points before it leveled off.

Overshadowed by the market hype leading up to the Fed rate hike, Eurozone releases enjoyed a positive week. On the manufacturing front, German, French and Eurozone Manufacturing PMIs all slightly exceeded their estimates, and all remained above the 50-point level, which indicates expansion in the manufacturing sector. Earlier in the week, German and Eurozone ZEW confidence reports both improved sharply. On Thursday, German Ifo Business Climate remained steady, posting a strong reading of 108.7 points. However, this was short of the estimate of 109.2 points. These solid numbers have helped bolster the euro, which even with this week’s losses, has enjoyed an excellent month of December, gaining about 300 points.

EUR/USD Fundamentals

Monday (Dec. 21)

• 7:00 German PPI. Estimate -0.2%. Actual -0.2%
• 11:00 German Buba Monthly Report
• 15:00 Eurozone Consumer Confidence. Estimate -6 points

Upcoming Key Events

Tuesday (Dec. 22)

• 13:30 US Final GDP. Estimate 1.9%

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Monday, December 21, 2015

EUR/USD December 21 at 11:30 GMT

EUR/USD 1.0871  H: 1.0883 L: 1.0848

EUR/USD Technical

• EUR/USD has showed marginal movement in the Asian and European sessions.
• 1.0847 remains busy and has switched to a support role. It is a weak line.
• 1.0941 is an immediate resistance line
• Current range: 1.0847 to 1.0941

Further levels in both directions:

• Below: 1.0847, 1.0732, 1.0659 and 1.0550
• Above: 1.0941, 1.1087 and 1.1172

OANDA’s Open Positions Ratio

EUR/USD ratio is showing limited movement, reflective of the lack of movement from the pair. Short positions command a strong majority (60%). This is indicative of trader bias towards the euro losing ground.

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.