EUR/USD – Euro Subdued as Markets Search for Cues

The euro has started off the trading week quietly, as EUR/USD is trading at 1.1260. On the release front, it’s a light day, with no major events in the Eurozone or the US. The quarterly Italian unemployment rate edged lower to 11.5%, matching the forecast. In the US, FOMC member Lael Brainard will speak about monetary policy at an event in Chicago. On Tuesday, Germany releases the ZEW Economic Sentiment report.

EUR/USD posted gains on Thursday after the ECB policy meeting, although these gains were erased in the Friday session. The euro reacted positively after the ECB maintained interest rates and said it had no plans to extend its asset-purchase program beyond March 2017. The decision to hold the benchmark rate at 0.00% was widely expected, but some analysts had expected the bank to extend the QE program or at least hint at its expansion. The ECB statement added that it expected the economy to grow at a “moderate, steady pace” and projected that inflation, which is far below the bank’s target, would increase. ECB President Mario Draghi didn’t have much to add at a follow-up press conference, but his comments about Brexit seem to say that the bark is worse than the bite – despite all the market noise, the ECB expects the impact on the Eurozone economy to amount to just 0.1% in 2017 and 2018. This is certainly not insignificant, but still a far cry from the doom-and-gloom projections that the Eurozone and UK are headed for recessions in the wake of the British decision to leave the European Union.

Federal Reserve chair Janet Yellen provided an upbeat assessment of the US economy at the Jackson Hole summit last month, raising speculation that the Fed could raise rates for the first time since December 2015. With the Federal Reserve policy meeting just over a week away, US key numbers will be under the market microscope. We’ll have to wait until Thursday and Friday for major releases, highlighted by retail sales, CPI and consumer confidence numbers. If these numbers are stronger than expected, the odds of a rate hike next week will move higher, and the dollar could make headway against its rivals. Although the US labor market remains close to capacity, many FOMC members will be reluctant to approve a rate hike based solely on strong employment numbers and will want to see stronger numbers throughout the economy. Consumer spending remains a concern, but the main sticking point is weak inflation levels, which will likely weaken even further if the Fed raises rates. The likelihood of a rate hike in 2016 has risen since last week, with the CME FedWatch Tool indicating a 24% chance for a September move and a 44% likelihood of a December hike.

EUR/USD Fundamentals

Monday (September 12)

• 8:00 Italian Quarterly Unemployment Rate. Estimate 11.5%
• 17:00 US FOMC Member Lael Brainard Speaks
• 17:01 US 10-year Bond Auction

Tuesday (September 13)

• 9:00 German ZEW Economic Sentiment. Estimate 2.8

*All release times are EDT

* Key events are in bold

EUR/USD for Monday, September 12, 2016

EUR/USD September 12 at 8:10 GMT

Open: 1.1240 High: 1.1264 Low: 1.1234 Close: 1.1253

EUR/USD Technical

• EUR/USD has been flat in the Asian and European sessions
• 1.1278 remains under pressure as resistance
• 1.1150 is providing strong support

Further levels in both directions:

• Below: 1.1150, 1.1054, 1.0957 and 1.0821
• Above: 1.1278, 1.1376 and 1.1467
• Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Monday, consistent with the lack of movement from EUR/USD. Currently, short positions have a significant majority (61%), indicative of trader bias towards EUR/USD breaking out and moving to lower ground.

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.