EUR/USD – Euro Shrugs Off Soft German Industrial Production

The euro is almost unchanged on Wednesday, as EUR/USD trades at 1.0730. On the release front, German Industrial Production posted a gain of 0.3%, well short of the forecast of 0.9%. In the US, today’s key event is JOLTS Job Openings, with the indicator expected to rise to 5.53 million. On Thursday, the ECB will meet and set its benchmark interest rate. The US will release unemployment claims, with the indicator expected to rise to 272 thousand.

The euro has calmed down after a roller-coaster start to the week, courtesy of the Italian referendum on Sunday. The “No” camp cruised to victory with 59.1% of the vote, a humiliating defeat for Prime Minister Matteo Renzi. Renzi promptly resigned, plunging Italy into political uncertainty. The euro responded with a knee-jerk reaction on Monday, dropping below the 1.05 line. The euro wasn’t done and rebounded with strong gains, as EUR/USD climbed 1.9 percent in the Monday session, punching above the 1.07 level. The drama in Italy is by no means over, as the caretaker government will have to set a date for new elections. Currently, Renzi’s Democratic Party is running neck-and-neck with the opposition Five-Star Party, which wants a referendum on Italy’s membership in the Eurozone. Renzi’s crushing defeat has shaken up the Eurozone, which is still reeling from Britain’s recent decision to depart the European Union.

The ECB meets on Thursday and the bank is expected to maintain interest rates at a record low 0.00%. What will likely be of greater interest is the bank’s quantitative asset program, which is due to end in March. The markets are expecting the ECB to extend QE for another six months. What remains unclear is whether the bank will begin tapering off the amount of QE purchases, which currently stand at EUR 80 billion/month. Given that inflation and growth projections for the Eurozone have been revised upwards, there is room to reduce the monthly purchases, perhaps by EUR 10 billion/month. If the ECB does lower QE purchases, this would mark a form of monetary tightening and the euro could respond with gains.

Political Uncertainty Added to Italian Woes

Italian Minister Says New Elections Could Happen in February

EUR/USD Fundamentals

Wednesday (December 7)

• 7:00 German Industrial Production. Estimate 0.9%. Actual 0.3%
• 7:45 French Trade Balance. Estimate -4.2B. Actual -5.2B
• 9:00 Italian Quarterly Unemployment Rate. Estimate 11.6%. Actual 11.6%
• 15:00 US JOLTS Jobs Openings. Estimate 5.53M
• 15:30 US Crude Oil Inventories. Estimate -1.4M
• 20:00 US Consumer Credit. Estimate 17.5B

Thursday (December 8)

• 12:45 ECB Minimum Bid Rate. Estimate 0.00%
• 13:30 ECB Press Conference
• 13:30 US Unemployment Claims. Estimate 272K

*All release times are GMT

* Key events are in bold

EUR/USD for Wednesday, December 7, 2016

EUR/USD December 6 at 12:40 GMT

Open: 1.0719 High: 1.0733 Low: 1.0708 Close: 1.0725

EUR/USD Technical

• EUR/USD was flat in the Asian session and this trend continues in European trade
• 1.0708 is providing weak support
• 1.0821 is the next resistance line

Further levels in both directions:

• Below: 1.0708, 1.0616, 1.0506 and 1.0414
• Above: 1.0821, 1.0957 and 1.1045
• Current range: 1.0708 to 1.0821

OANDA’s Open Positions Ratio

EUR/USD ratio is showing gains in long positions. Currently, short positions have a majority (57%), indicative of trader bias towards EUR/USD breaking out and moving lower.

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.