EUR/USD – Euro Shrugs Off Softer German Business Climate

EUR/USD continues to have an uneventful week. In the Wednesday session, the pair is trading at 1.0750. On the release front, German Ifo Business Climate dipped to 109.8, short of the forecast of 111.3. This marked a 4-month low. There are no major events in the US. On Thursday, the US releases two key indicators – Unemployment Claims and New Home Sales.

In the Eurozone and Germany, manufacturing and inflation numbers continue to point upwards. The manufacturing sector continues to show expansion, as underscored by January PMI reports. German Manufacturing PMI improved to 56.5, above the forecast of 55.5. This marked the highest level of expansion since April 2011. Eurozone Manufacturing PMI echoed its German counterpart, climbing to 55.1, its best reading since March 2011. The picture is also looking bright on the inflation front. In December, German PPI edged up to 0.4% and Eurozone Final CPI jumped 1.1%, its strongest showing in over three years. Inflation levels are currently about halfway to the ECB’s target of 2 percent. If the trend continues, we could see the ECB tighten monetary policy later in the year, either by raising interest rates or tapering its QE scheme. At its policy meeting last week, the ECB maintained its ultra-easy monetary policy, keeping interest rates at 0.00%, where they have been pegged since March 2016. The ECB maintained its asset-purchase program (QE), which is scheduled to continue until December 2017, at a pace of EUR 60 billion/mth.

Donald Trump has just moved in to the Oval Office, but dramatic change is already underway. On Monday, Trump signed an executive order formally withdrawing the US from the Trans-Pacific Partnership, a broad trade agreement which the US had signed but not ratified. Trump had promised to leave the TPP during the election, arguing that the deal would hurt American workers. Next stop is NAFTA, which Trump has said he will renegotiate with Canada and Mexico. Trump has taken a tough line on US companies that have moved production outside of the US and has threatened to impose tariffs on companies that move production to Mexico. Predictably, these protectionist measures are raising concerns in the markets that US economic growth could drop if the US takes an isolationist stance towards global trade, and such a stance would likely weigh on the US dollar. If America’s trade partners choose to retaliate against Trump’s moves, this could lead to a trade war in which there are no winners. 

Mexico Could Pull Out of NAFTA if Renegotiation Unfavorable

After U.S Exit, Asian Nations Try to Save TPP

EUR/USD Fundamentals

Wednesday (January 25)

• 4:00 German Ifo Business Climate. Estimate 111.3. Actual 109.8
• Tentative – German 30-year Bond Auction
• 9:00 Belgian NBB Business Climate. Estimate 0.4
• 9:00 US HPI. Estimate 0.4%
• 10:30 US Crude Oil Inventories. Estimate 1.5M

Upcoming Key Releases

Thursday (January 26)

• 8:30 US Unemployment Claims. Estimate 247K
• 10:00 US New Home Sales. Estimate 585K

*All release times are EST

*Key events are in bold

EUR/USD for Wednesday, January 25, 2017

EUR/USD January 25 at 5:50 EST

Open: 1.0728 High: 1.0755 Low: 1.0711 Close: 1.0753

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted slight gains in European trade
• 1.0708 remains a weak support level
• 1.0873 is the next resistance line

Further levels in both directions:

• Below: 1.0708, 1.0616, 1.0506 and 1.0414
• Above: 1.0873, 1.0985 and 1.1114
• Current range: 1.0708 to 1.0873

OANDA’s Open Positions Ratio

EUR/USD ratio remains unchanged this week. Currently, short positions have a majority (54%), indicative of trader bias towards EUR/USD continuing to move higher.

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.