EUR/USD – Euro Shrugs Off Strong Inflation Numbers and May’s Brexit Speech

EUR/USD is showing limited movement in the Wednesday session. Currently, the pair is trading slightly below the 1.07 line. On the release front, German and Eurozone CPI data pushed higher in December. In the US, we’ll get a look at CPI, with the estimate standing at 0.3%. On Thursday, the ECB holds a policy meeting and will set interest rates for January. The rate is expected to pegged at a flat 0.00%. There are three key events in the US – Building Permits, Philly Fed Manufacturing Index and Unemployment Claims.

British Prime Minister Theresa May was on center stage on Tuesday, as she delivered a landmark speech on Brexit. Much of the speech had been leaked to the press ahead of time, but the pound had a historic day nonetheless, surging 2.9%, its largest 1-day gain since 2008. In her remarks, May confirmed that Britain would no longer enjoy access to Europe’s common market, but would assume full control over its borders and immigration policy. She said that Britain was not looking for a “half-in, half out” relationship with the EU, and Britain would seek free-trade deals with Europe and countries around the world. May intends to begin Brexit negotiations with Europe in March and has set a two-year time frame for an agreement to be reached. Many European leaders were decidedly cool towards the speech, but Germany’s foreign minister acknowledged that May had finally clarified Britain’s stance on Brexit.

Eurozone inflation continues to point upwards. German Final CPI jumped 0.7%, up from 0.1% a month earlier. This marked the indicator’s strongest gain since March 2016. Eurozone Final CPI also impressed, with a gain of 1.1%, compared to 0.6% in the previous release. Meawhile, investor/analyst expectations improved in January, although the markets were hoping for more. German ZEW Economic Sentiment rose to 16.6, shy of the forecast of 18.9. Eurozone ZEW Economic Sentiment jumped to 23.2 points, short or the estimate of 24.2. These indicators point to optimism about economic conditions from investors and analysts.  The ECB will hold its first policy meeting in the New Year on Thursday. Recent numbers from the Eurozone have been encouraging, as growth and inflation numbers have shown improvement. Still, it’s doubtful that the ECB will start the year with significant changes to monetary policy, as plenty of slack remains the Eurozone economy. In December, the bank extended its asset-purchase program until December 2017, but also cut the size of the program from EUR 80 billion to 60 billion. These parameters are unlikely to change until policymakers see a significant improvement in growth and inflation numbers.

The US dollar was broadly lower on Tuesday, courtesy of president-elect Donald Trump. In an interview with the Wall Street Journal on Monday, Trump complained that the currency was “too strong”. These sentiments were echoed on Tuesday by Trump advisor Anthony Scaramucci. Speaking at the World Economic Forum in Davos, Scaramucci warned that “we must be careful of a rising dollar.” Trump broke with the unwritten rule that US presidents refraining from commenting on the US dollar, and his comments could be a taste of more to come, as Trump is unlikely to veer from his habit of making controversial comments.

Trump Deflates USD Ahead of Inflation Data

EUR/USD Fundamentals

Wednesday (January 18)

• 2:00 German Final CPI. Estimate 0.7%. Actual 0.7%
• 5:00 Eurozone Final CPI. Estimate 1.1%. Actual 1.1%
• 5:00 Eurozone Final Core CPI. Estimate 0.9%. Actual 0.9%
• 8:30 US CPI. Estimate 0.3%
• 8:30 US Core CPI. Estimate 0.2%
• 9:15 US Capacity Utilization Rate. Estimate 75.6%
• 9:15 US Industrial Production. Estimate 0.8%
• 10:00 US NAHB Housing Market Index. Estimate 69 points
• 11:00 US FOMC Member Neel Kasharki Speech
• 14:00 US Beige Book
• 15:00 US Federal Reserve Chair Yellen Speech
• 16:00 US TIC Long-Term Purchases. Estimate 21.3B

Upcoming Key Events

Thursday (January 19)

• 7:45 Eurozone Minimum Bid Rate. Estimate 0.00%
• 8:30 ECB Press Conference
• 8:30 US Building Permits. Estimate 1.22M
• 8:30 US Philly Fed Manufacturing Index. Estimate 16.3
• 8:30 US Unemployment Claims. Estimate 252K

*All release times are EST

*Key events are in bold

EUR/USD for Wednesday, January 18, 2017

EUR/USD January 18 at 7:00 GMT

Open: 1.0696 High: 1.0712 Low: 1.0675 Close: 1.0688

EUR/USD Technical

• EUR/USD was flat in the Asian session and has inched lower in European trade
• 1.0616 is providing support
• 1.0708 was tested in resistance earlier and is a weak line

Further levels in both directions:

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

OANDA’s Open Positions Ratio

EUR/USD ratio is showing limited change in the Wednesday session. Currently, short positions have a slim majority (53%), indicative of slight trader bias towards EUR/USD reversing directions and moving 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.