EUR/USD – Euro Remains Subdued, Markets Eye Yellen Testimony

The euro is having a quiet week, as the pair continues to stay close to the 1.14 line. On the release front, there are no major events out of the eurozone. With a lack of data so far this week, investors have been consolidating positions, contributing to the lack of movement from EUR/USD. In the US, today’s key event is JOLTS Job Openings, which is expected to come in at 5.98 million, lower than the previous reading of 6.04 million. On Wednesday, Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee.

The US wrapped up last week with key employment numbers, and the results were mixed. Nonfarm Payrolls rebounded in June, climbing to 222 thousand. This easily beat the estimate of 175 thousand and marked a 4-month high. However, wage growth remained stuck at 0.2%, shy of the forecast of 0.3%. Weak wage growth has remained soft throughout the first half of 2017, which is somewhat puzzling, as the labor market remains extremely tight, with an unemployment rate of 4.4%. As well, there are widespread reports of a lack of qualified workers, but this hasn’t translated into higher wages.

The markets reacted positively to the solid Nonfarm Payrolls report, but expectations of a third rate hike in 2017 remain lukewarm. A rate increase in September is very unlikely, with the odds pegged at just 13%, according to the CME Group. As for December, the likelihood of a rate hike is 50%, so the markets will need plenty of convincing that the Fed plans to make a move. What factors will raise the odds of a rate increase? First, second quarter growth will have to improve, after a weak performance in the first quarter, in which GDP rose just 1.4%. Second, stronger inflation levels would boost speculation of a rate hike. Currently, inflation is well below the Fed’s target of 2%, and although Janet Yellen recently stated that the factors weighing on inflation were temporary, investors aren’t convinced. Third, the Fed has outlined plans to reduce its bloated balance sheet, but has avoided providing any specifics. If the Fed started to lower the balance sheet in September, such a move would mark a vote of confidence in the economy and raise speculation of a rate hike to follow in December.

No catalyst overnight

EUR/USD Fundamentals

Tuesday (July 11)

• 4:00 Italian Industrial Production. Estimate 0.5%. Actual 0.7%
• 6:00 US NFIB Small Business Index. Estimate 104.4. Actual 103.6
• 10:00 US JOLTS Openings. Estimate 5.98M
• 10:00 US Final Wholesale Inventories. Estimate 0.3%
• 12:30 US FOMC Member Lael Brainard Speaks

Upcoming Key Events

Wednesday (July 12)

• 10:00 US Fed Chair Janet Yellen Testifies

*All release times are EDT

*Key events are in bold

EUR/USD for Tuesday, July 11, 2017

EUR/USD Tuesday, July 11 at 7:05 EDT

Open: 1.1399 High: 1.1400 Low: 1.1383 Close: 1.1396

EUR/USD Technical

EUR/USD has showed little movement in the Asian and European sessions

• 1.1366 is a weak support line
• 1.1465 is the next resistance line

Further levels in both directions:

• Below: 1.1366, 1.1242, 1.1122 and 1.0985
• Above: 1.1465, 1.1534 and 1.1616
• Current range: 1.1366 to 1.1465

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged in the Tuesday session. Currently, short positions have a majority (67%), indicative of EUR/USD breaking out and moving lower.

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