EUR/USD – Euro Shrugs Off Soft German Business Climate Report

The euro has edged higher on Thursday, as EUR/USD trades just below the 1.13 level. On the release front, German Ifo Business Climate slipped to 106.2 points, well below expectations. Later in the day, the US releases durable good reports and unemployment claims. On Friday, the US releases Preliminary GDP and we’ll also hear from Federal Reserve chair Janet Yellen at the Jackson Hole conference.

As the largest economy in the Eurozone, German releases are closely monitored as they often act as bellwethers for the Eurozone. Ifo Business Climate has looked sharp has looked sharp in recent readings, but the August report dropped to 106.2 points, its lowest level in six months. More significantly, the indicator dropped from 108.6 in July, its largest drop since May 2012. The poor reading underscores concerns that businesses are taking a “wait and see” attitude after the Brexit referendum, as Britain and Europe must begin the long and arduous negotiations process of Britain’s departure from the EU. Although the German economy expanded in the second quarter, it failed to keep up with the first quarter’s pace. Final GDP climbed 0.4%, within expectations but well behind the first quarter gain of 0.7%. Domestic consumption continues to power the economy, with low inflation and zero interest rates helping to spur consumer spending. On Tuesday, there were no surprises from August Eurozone PMI reports, most of which were very close to the estimates. German and Eurozone Manufacturing PMIs both pointed to expansion in the manufacturing sector. As well, both indicators were showed little changed from the July readings, which indicates that manufacturers continue to be optimistic, even after the Brexit vote.

The markets will shift their attention to scenic Wyoming, where central bankers and other senior policymakers meet for a 3-day summit at Jackson Hole, starting on Thursday. With investors sticking to the sidelines ahead of the meeting, there has been a notable lack of movement in the currency markets so far this week. The markets will be looking for hints from Federal Reserve chair Janet Yellen regarding the Fed’s monetary plans, particularly the timing of a rate hike. Federal policymakers are divided over a rate hike, as the US labor market is red-hot, but inflation levels remains very low. Fed chair Janet Yellen will address the conference on Friday, and she is expected to discuss the labor market and the inflation picture. As well, the US will release Preliminary GDP for the second quarter. In July, a soft Advance GDP sent the dollar downwards, as the economy expanded 1.2%, well short of the forecast of 2.6%. The estimate for the Preliminary GDP report stands at 1.1%.

EUR/USD Fundamentals

Thursday (August 25)

• 8:00 German Ifo Business Climate. Estimate 108.5. Actual 106.2
• 12:30 US Unemployment Claims. Estimate 265K
• 12:30 US Core Durable Goods Orders. Estimate 0.4%
• 12:30 US Durable Goods Orders. Estimate 3.4%
• 13:45 US Flash Services PMI. Estimate 51.9
• 14:30 US Natural Gas Storage. Estimate 22B
• All Day – Jackson Hole Symposium

Friday (August 26)

• 12:30 US Preliminary GDP. Estimate 1.1%
• 14:00 Federal Reserve Chair Janet Yellen Speaks
• 14:00 US Revised UoM Consumer Sentiment. Estimate 90.6
• All Day – Jackson Hole Symposium

*All release times are EDT

* Key events are in bold

EUR/USD for Thursday, August 25, 2016

EUR/USD August 25 at 10:20 GMT

Open: 1.1261 High: 1.1297 Low: 1.1259 Close: 1.1294

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted slight gains in European trade
•  1.1278 remains a weak support line. It could be tested in the Thursday session
•  There is resistance at 1.1376

Further levels in both directions:

• Below: 1.1278, 1.1150 and 1.1054
• Above: 1.1376, 1.1467 and 1.1534
• Current range: 1.1278 to 1.1376

OANDA’s Open Positions Ratio

EUR/USD ratio is showing slight gains in short positions. Currently, short positions have a strong majority (63%), indicative of trader bias towards EUR/USD continuing to post gains.

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.