EUR/USD – Euro Remains Subdued as Markets Look for Cues

EUR/USD has posted small gains on Wednesday, as the pair continues to drift this week. The pair is trading at 1.1080. It’s another light day on the release front, as the markets look for economic cues for guidance. In the Eurozone, French Final CPI posted a small gain of 0.1 percent, close to the estimate. Eurozone Industrial Production posted a sharp drop of 1.2 percent, below expectations. In the US, today’s highlight is Crude Oil Inventories, with the estimate standing at -2.3 million barrels. On Thursday, the US will release two key events – PPI and Unemployment Claims.

Eurozone manufacturing numbers remain soft, as underscored on Wednesday by Eurozone Industrial Production. The indicator declined 1.2 percent, its third decline in the past four months. This reading was weaker than the forecast of -0.8 percent. Still, the release shouldn’t have come as a surprise, as the largest three economies in the Eurozone saw a contraction in industrial production in May. German Industrial Production declined 1.3 percent, the French reading dropped 0.5%, while Italian Industrial Production dipped 0.6%. These figures point to a struggling manufacturing industry across the Eurozone, which has been hit hard by weak global conditions and soft Chinese demand. The Brexit vote, which has created deep political and economic uncertainty in Europe and the UK, could make matters even worse for manufacturers in the second half of 2016.

German inflation numbers dipped in June, although they managed to meet market expectations. Final CPI gained just 0.1%, down from 0.3% in the previous release. WPI climbed 0.6%, compared to 0.9% in the May report. We’ll get a look at Eurozone Final CPI on Friday, with the estimate standing at just 0.1%. With inflation mired at low levels, the ECB is under pressure to adopt further monetary easing, but even this may not be enough to kick-start a languishing economy. Japan’s experience has shown that cutting interest rates, even into negative territory, does not translate into higher inflation levels.

Following an historic rate hike in December, there were high hopes that the Fed would continue with a series of hikes in 2016. Fast forward to July, and the Fed is yet to make a move this year, as the US economy has not matched its impressive growth rates in 2015. Last week’s Fed minutes reinforced the perception that the Fed is unlikely to tighten policy anytime soon, as the tentative Fed remains cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike this year will increase.

EUR/USD Fundamentals

Wednesday (July 13)

• 6:45 French Final CPI. Estimate 0.2%. Actual 0.1%
• 9:00 Eurozone Industrial Production. Estimate -0.8%. Actual -1.2%
• Tentative – German 10-year Bond Auction
• 12:30 US Import Prices. Estimate 0.6%
• 14:30 US Crude Oil Inventories. Estimate -2.3M
• 17:01 US 30-year Bond Auction
• 18:00 US Beige Book
• 18:00 US Federal Budget Balance. Estimate 24.2B

Thursday (July 14)

• 12:30 US PPI. Estimate 0.3%
• 12:30 US Unemployment Claims. Estimate 263K

* Key releases are in bold

*All release times are GMT

EUR/USD for Wednesday, July 13, 2016

EUR/USD July 13 at 10:50 GMT

Open: 1.1060 High: 1.1079 Low: 1.1041 Close: 1.1077

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted slight gains in the European session
• 1.1054 is fluid and was tested in support earlier in the Wednesday session
• There is resistance at 1.1150

Further levels in both directions:

• Below: 1.1054, 1.0925 and 1.0821
• Above: 1.1150, 1.1278, 1.1376 and 1.1495
• Current range: 1.1054 to 1.1150

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged on Wednesday, consistent with the lack of movement from EUR/USD. Short positions have a strong majority (58%), indicative of strong trader bias towards EUR/USD reversing directions and moving to lower levels.

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.