EUR/USD – Euro Subdued as French Markets Closed for Bastille Day

EUR/USD is calm on Thursday, as the pair trades close to the 1.11 line. France is marking Bastille Day, so French markets are closed. There are no Eurozone events on the schedule. In the US, two key indicators will be released – PPI and Unemployment Claims. After a quiet week on the release front, Friday will be data- heavy. The Eurozone will release Final CPI, while the US will publish inflation, retail sales and consumer confidence reports.

Weak global conditions have hurt manufacturing sectors throughout the industrialized world, and Europe has not been immune. On Wednesday, Eurozone Industrial Production declined 1.2 percent, its third drop in the past four months. This reading was weaker than the forecast of a 0.8 percent decline. The release shouldn’t have come as a surprise, as the largest three economies in the Eurozone recorded a contraction in industrial production in May. German Industrial Production declined 1.3 percent, the French reading dropped 0.5%, while Italian Industrial Production dipped 0.6%. These figures point to a struggling manufacturing industry across the Eurozone, which has been hard-hit by a decrease in Chinese demand. The aftershocks of the Brexit vote, which has created deep political and economic uncertainty in Europe and the UK, could make matters even worse for manufacturers in the second half of 2016.

Eurozone inflation numbers remain weak, reflective of a lack of growth in the bloc. German inflation numbers dipped in June, although they managed to meet market expectations. Final CPI gained just 0.1%, down from 0.3% in the previous release. WPI climbed 0.6%, compared to 0.9% in the May report. We’ll get a look at Eurozone Final CPI on Friday, with the estimate standing at just 0.1%. With inflation mired at low levels, the ECB is under pressure to adopt further monetary easing, but even this may not be enough to kick-start a languishing economy. Japan’s experience has shown that cutting interest rates, even into negative territory, does not translate into higher inflation levels.

When the Federal Reserve raised interest rates last December, it marked the first time it had done so in close to a decade. After the historic move,  there were high hopes that the Fed would continue with a series of hikes in 2016. Fast forward to July, and the Fed is yet to make a move this year, as the US economy has not matched its impressive growth rates in 2015. Last week’s Fed minutes reinforced the perception that the Fed is unlikely to tighten policy anytime soon, as the tentative Fed remains cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike this year will increase.

EUR/USD Fundamentals

Thursday (July 14)

• 12:30 US PPI. Estimate 0.3%
• 12:30 US Unemployment Claims. Estimate 263K
• 12:30 US Core PPI. Estimate 0.1%
• 14:30 US Natural Gas Storage. Estimate 61B

Friday (July 15)

• 9:00 Eurozone CPI. Estimate 0.1%
• 12:30 US CPI. Estimate 0.2%
• 12:30 US Core CPI. Estimate 0.2%
• 12:30 US Retail Sales. Estimate 0.4%
• 12:30 US Core Retail Sales. Estimate 0.1%
• 14:00 US Preliminary UoM Consumer Sentiment. Estimate 93.7 

* Key releases are in bold

*All release times are GMT

EUR/USD for Thursday, July 14, 2016

EUR/USD July 14 at 9:30 GMT

Open: 1.1094 High: 1.1129 Low: 1.1085 Close: 1.1113

EUR/USD Technical

• EUR/USD has shown limited movement in the Asian and European sessions
• 1.1054 is providing support
• There is resistance at 1.1150

Further levels in both directions:

• Below: 1.1054, 1.0925 and 1.0821
• Above: 1.1150, 1.1278, 1.1376 and 1.1495
• Current range: 1.1054 to 1.1150

OANDA’s Open Positions Ratio

EUR/USD ratio is showing gains in long positions on Thursday. Short positions have a strong majority (62%), indicative of strong trader bias towards EUR/USD reversing directions and moving to lower levels.

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.