EUR/USD – Euro Takes Hit After Fed Surprise

EUR/USD has reversed directions on Thursday and posted modest gains. In the European session, the pair is trading at 1.0960. The euro lost over 100 points on Wednesday, as the Fed surprised the markets with a hawkish policy statement. EUR/USD briefly dropped below the 1.09 line, the first time this has happened since August. In Thursday’s economic news, German Unemployment Change met expectations, and we’ll get a look at German CPI later in the day. There are two key releases out of the US on Thursday – Advance GDP and Unemployment Claims. The US will wind up the week with one market-mover on Friday  – US Employment Cost Index.

The euro broke out of a lethargic week on Wednesday, dropping 150 points immediately after the Federal Reserve policy statement. The markets had lowered expectations about a rate hike before the end of the year, but the Fed statement revived the possibility of a December hike, stating that it would raise rates when there is further improvement in the US labor market and when inflation rises closer to the 2% target. The markets pounced on the following excerpt from the statement:

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation” [emphasis mine]

The next Fed meeting is mid-December, and the markets will be in alert mode for any further hints about a rate hike. As well, key US numbers will be closely monitored, especially employment and inflation data, as the strength of these numbers in the next several weeks will play a critical role in determining whether the Fed will press the rate trigger in December.

With all the excitement surrounding the Fed, traders shouldn’t ignore Thursday’s key events – Advance GDP and Unemployment Claims. The estimate for Advance GDP for the third quarter stand at 1.5%, compared to a Final GDP for Q2 of 3.9%. A reading below the forecast could hurt the US dollar. Unemployment Claims, which came in at 259 thousand last week, has now beaten the estimate for three straight weeks, but are expected to rise to 264 thousand.

EUR/USD Fundamentals

Thursday (Oct. 29)

• All Day – German Preliminary CPI. Estimate -0.1%
• 8:00 Spanish Flash CPI. Estimate -0.6%. Actual -0.7%
• 8:55 German Unemployment Change. Estimate -4K. Actual -5K
• Tentative – Italian 10-year Bond Auction.
• 12:30 US Advance GDP. Estimate 1.6%
• 12:30 US Unemployment Claims. Estimate 264K
• 12:30 Advance GDP Price Index. Estimate 1.5%
• 13:10 FOMC Member Dennis Lockhart Speaks
• 14:00 US Pending Home Sales. Estimate 1.1%
• 14:30 US Natural Gas Storage. Estimate 70B

Upcoming Key Events

Friday (Oct. 30)

• 12:30 US Employment Cost Index. Estimate 0.6%.

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Thursday, October 29, 2015

EUR/USD October 29 at 10:40 GMT

EUR/USD 1.0957 H: 1.0977 L: 1.0900

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted gains in the European session.
• 1.1017 has switched to a resistance role following the euro’s sharp losses.
• 1.0941 is a weak support level.
• Current range: 1.0941 to 1.1017

Further levels in both directions:

• Below: 1.0941, 1.0847 and 1.0659
• Above: 1.1017, 1.1105, 1.1214 and 1.1296

OANDA’s Open Positions Ratio

EUR/USD ratio has not changed, despite strong volatility from the pair. Long positions currently have a slight majority (54%), which points to trader bias towards the pair 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.