EUR/USD – Euro Shrugs Off Weak German Retail Sales

EUR/USD has edged upwards in the Friday session. Currently, the pair is trading at 1.0540. On the release front, German Retail Sales declined 0.8%, well off the estimate of +0.2%. German Services PMI improved to 54.4, matching the estimate. In the US, today’s highlight is ISM Manufacturing PMI, which is forecast to remain unchanged at 56.5 points. The markets will be listening closely as four FOMC members deliver remarks on Friday, including Federal Reserve Chair Janet Yellen.

Market sentiment continues to heat up regarding a Fed rate hike. Federal Reserve policymakers continue to sound hawkish about a rate move on March 15, when the Fed next meets for a policy meeting. Earlier in the week, FOMC members William Dudley and John Williams both hinted at an imminent hike by the Fed. Dudley said the case for a hike is compelling, while Williams noted that a rate increase will be up for “serious consideration” at the March policy meeting. The markets are taking these statements at face value, as the odds of a March move have increased dramatically. The likelihood of a rate move has junped to 80%, compared to 33% just a few days ago. Why the huge jump in odds? One reason is that policymakers are now saying they don’t need to wait for Donald Trump to outline tax reform or other economic packages before making a monetary move. This is a significant departure from a few weeks ago, when the Fed sent out signals that it would stay on the sidelines until it had a clearer picture of the economic stance of the new administration.

It’s been a mixed week for German numbers. Retail Sales, the primary gauge of consumer spending, is in trouble, posting a third straight decline in January. However, Services PMI continues to post readings above 50, pointing to expansion in services sector. On Thursday, Preliminary CPI rebounded with a strong gain of 0.6%, matching the estimate. Unemployment rolls dropped by 14 thousand, better than the estimate of -10 thousand. As well, German Final Manufacturing PMI improved to 56.8, just shy of the estimate of 57.0. In the Eurozone, inflation is expected to rise to 2.0% in February, as policymakers are now concerned that inflation levels could become to high. One way to prevent that would be a tightening of monetary policy by the ECB, but the central bank will be hesitant to tinker with interest rates or its asset-purchase program unless growth and inflation indicators heat up significantly.

Markets Pause ahead of Key Fed Speakers

EUR/USD Fundamentals

Friday (March 3)

• 2:00 German Retail Sales. Estimate +0.2%. Actual -0.8%
• 3:15 Spanish Services PMI. Estimate 55.1. Actual 57.7
• 3:45 Italian Services PMI. Estimate 53.1. Actual 54.1
• 3:50 French Final Services PMI. Estimate 56.7. Actual 56.4
• 3:55 German Final Services PMI. Estimate 54.4. Actual 54.4
• 4:00 Eurozone Final Services PMI. Estimate 55.6. Actual 55.5
• 5:00 Eurozone Retail Sales. Estimate 0.3%. Actual -0.1%
• 10:00 US ISM Manufacturing PMI. Estimate 56.5
• 10:15 US FOMC Member Charles Evans Speech
• 12:15 US FOMC Jerome Powell Speech
• 13:00 Federal Reserve Chair Janet Yellen Speech
• 13:00 US FOMC Member Stanley Fischer  Speaks

*All release times are EST

*Key events are in bold

EUR/USD for Friday, March 3, 2017

EUR/USD March 2 at 5:50 EST

Open: 1.0507 High: 1.0548 Low: 1.0502 Close: 1.0537

EUR/USD Technical

EUR/USD has been flat in the Asian and European sessions

• 1.0506 remains a weak support line
• 1.0616 is the next resistance line

Further levels in both directions:

• Below: 1.0506, 1.0414 and 1.0333
• Above: 1.0616, 1.0708, 1.0873 and 1.0985
• Current range: 1.0506 to 1.0616

OANDA’s Open Positions Ratio

EUR/USD ratio continues to show gains in long positions. Currently, long positions have a majority (60%), indicative of trader bias towards the euro 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.