EUR/USD – Euro Slips Below 1.05 as Fed Raises Rates

The euro has steadied on Thursday, following sharp losses in the Wednesday session. Currently, EUR/USD is trading at 1.0470, its lowest level since March 2015. On the release front, German and Eurozone Manufacturing PMIs both beat their estimates and pointed to continuing expansion. In the US, it’s a very busy day with a host of releases. Today’s highlights are CPI reports, unemployment claims and the Philly Fed Manufacturing Index. On Friday, the Eurozone will release Final CPI, while the US publishes Building Permits.

The Federal Reserve’s rate hike was widely expected and priced in by the markets at close to 100%. Still, once the rate hike was announced, EUR/USD dropped 1 percent. The rate hike was historic, marking the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year“. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimates. What’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. If Trump’s economic policies lead to higher inflation levels, the Fed may have to step in with larger hikes in order to keep the economy form overheating.

EUR/USD Breaks 1.0500 as Fed Connects the Dots

The Eurozone economy has shown improvement in the third quarter, as inflation and growth numbers have moved higher. Confidence levels among investors and analysts remain strong, as underscored by ZEW Economic Sentiment reports in December. The German indicator remained at 13.8 points, although this was short of the forecast of 14.2. The Eurozone report jumped to 18.1, beating the estimate of 16.5. These figures point to optimism over growth aspects in the Eurozone and in Germany, the bloc’s number one economy. On Friday, the Eurozone releases Final CPI, which is expected to improve to 0.6%.

EUR/USD Fundamentals

Thursday (December 15)

• 8:00 French Flash Manufacturing PMI. Estimate 51.9. Actual 53.5
• 8:00 French Flash Services PMI. Estimate 51.8. Actual 52.6
• 8:30 German Flash Manufacturing PMI. Estimate 54.6. Actual 55.5
• 8:30 German Flash Services PMI. Estimate 55.0. Actual 53.8
• 9:00 Eurozone Flash Manufacturing PMI. Estimate 53.9. Actual 54.9
• 9:00 Eurozone Flash Services PMI. Estimate 53.9. Actual 53.1
• Tentative – Eurozone Long Term Refinancing Operation
• 13:30 US CPI. Estimate 0.2%
• 13:30 US Core CPI. Estimate 0.2%
• 13:30 US Philly Fed Manufacturing Index. Estimate 9.1
• 13:30 US Unemployment Claims
• 13:30 US Current Account. Estimate -111B
• 13:30 US Empire State Manufacturing Index. Estimate 3.2
• 14:45 US Flash Manufacturing PMI. Estimate 54.2
• 15:00 US NAHB Housing Market Index. Estimate 63 points
• 15:30 US Natural Gas Storage. Estimate -126B
• 21:00 US TIC Long-Term Purchases

Upcoming Key Events

Friday (December 16)

• 10:00 Eurozone Final CPI. Estimate 0.6%
• 13:30 US Building Permits. Estimate 1.24M 
• 13:30 US Housing Starts. Estimate 1.23M

*All release times are GMT

* Key events are in bold

EUR/USD for Thursday, December 15, 2016

EUR/USD December 15 at 10:55 GMT

Open: 1.0511 High: 1.0523 Low: 1.0467 Close: 1.0474

EUR/USD Technical

• EUR/USD broke below two support lines on Wednesday following sharp losses. The pair is steady on Thursday
• 1.0414 is providing support
• 1.0506 is a weak resistance line

Further levels in both directions:

• Below: 1.0414, 1.0287 and 1.0170
• Above: 1.0506, 1.0616 and 1.0708
• Current range: 1.0414 to 1.0506

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged in the Thursday session. Currently, long positions have a majority (60%), indicative of trader bias towards EUR/USD reversing directions and moving upwards.

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.