EUR/USD – Euro Unchanged as Eurozone, German Mfg. PMIs Meet Expectations

EUR/USD has taken a pause on Wednesday, following strong gains in the Tuesday session. Currently, the pair is trading at the 1.08 line. On the release front, Manufacturing PMIs in Germany and the Eurozone were within expectations and both pointed to expansion in the manufacturing sector. In the US, there are two key indicators – ISM Manufacturing PMI and the ADP payrolls. All eyes will be on the Federal Reserve, which will issue a rate statement and set the benchmark rate, which is expected to remain pegged at 0.50%. On Thursday, the US will publish unemployment claims.

The German economy, the largest in Europe, has been sending mixed messages this week. There was positive news on Wednesday, as German Manufacturing PMI improved to 56.5, pointing to solid expansion. This was just shy of the estimate of 55.5. Earlier in the week, unemployment claims dropped by 26 thousand, as the unemployment rate dropped to 5.9% in January, its lowest level since reunification in 1990. However, key consumer indicators were unexpectedly soft. Germany’s economy continues to raise concerns, as consumer indicators have looked dismal this week. Retail Sales, the primary gauge of consumer spending, posted a sharp decline of 0.9%, its fourth decline in five readings. This reading comes on the heels of Preliminary CPI, which declined 0.6%, its first decline in 9 months.

The Federal Reserve will be on center stage on Wednesday, with the release of its policy statement. After a historic quarter-point raise in December, which pushed rates to 0.50 percent, the Fed is expected to remain on the sidelines in its first release of 2017. What happens next? Just a few weeks ago, Fed officials were talking about a series of rates hikes in 2017 (sound familiar? Please rewind to January 2016 for an identical message). However, after just 10 days on the job, President Trump has proven to be as unpredictable and controversial as ever. Trump has not provided any details about his economic blueprint for the country, but he has raised the rhetoric about “America first” and has already picked a fight with Mexico over a border wall and his threat to renegotiate the NAFTA trade agreement. After hinting at gradual rate increases, the Fed will likely change gears and adopt a wait-and-see attitude, watching what bills Trump gets through Congress and how the economy responds. If economic growth remains strong, a rate hike in the first half of 2017 will have to be seriously considered by the Fed. The markets have priced in a rate hike by June at 66 percent.

Fed Expected to Hold as Trump Comments Sink Dollar

EUR/USD Fundamentals

Wednesday (February 1)

• 3:15 Spanish Manufacturing PMI. Estimate 55.1. Actual 55.6
• 3:45 Italian Manufacturing PMI. Estimate 53.3. Actual 53.0
• 3:50 French Final Manufacturing PMI. Estimate 53.4. Actual 53.6
• 3:55 German Final Manufacturing PMI. Estimate 56.5. Actual 56.4
• 4:00 Eurozone Final Manufacturing PMI. Estimate 55.1. Actual 55.2
• 8:15 US ADP Nonfarm Employment Change. Estimate 165K
• 9:45 US Final Manufacturing PMI. Estimate 55.1
• 10:00 US ISM Manufacturing PMI. Estimate 55.0
• 10:00 US Construction Spending. Estimate 0.2%
• 10:00 US ISM Manufacturing Prices. Estimate 66.0
• 10:30 US Crude Oil Inventories. Estimate 2.6M
• All Day – US Total Vehicle Sales. Estimate 17.9M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rates. Estimate <0.75%

Upcoming Key Releases

Thursday (February 2)

• 7:15 ECB President Mario Draghi Speech
• 8:30 US Unemployment Claims. Estimate 251K

*All release times are EST

*Key events are in bold

EUR/USD for Wednesday, February 1, 2017

EUR/USD February 1 at 6:00 EST

Open: 1.0801 High: 1.0803 Low: 1.0774 Close: 1.0801

EUR/USD Technical

EUR/USD was flat in the Asian session and is shown limited movement in European trade

• 1.0708 is providing support
•  1.0873 is the next line of resistance

Further levels in both directions:

• Below: 1.0708, 1.0616, 1.0506 and 1.0414
• Above: 1.0873, 1.0985 and 1.1114
• Current range: 1.0708 to 1.0873

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement in the Wednesday session. Currently, short positions have a majority (59%), indicative of trader bias towards EUR/USD breaking out and heading 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.