EUR/USD – Euro Unchanged Ahead of Fed, US Consumer Reports

The euro continues to have a quiet week, as EUR/USD is trading at the 1.12 line in the Wednesday session. In Germany, Final CPI declined 0.2%, well off the forecast of a 0.5% gain. Employment Change climbed 0.4%, edging above the estimate of 0.3%. Eurozone Industrial Production climbed 0.5%, matching the estimate. There are a number of key events in the US, highlighted by the Federal Reserve rate announcement. As well, the US will release retail sales and CPI. The markets are prepared for a busy day, and traders should be prepared volatility from EUR/USD. On Thursday, the major event is US unemployment claims.

The markets are awaiting the Federal Reserve rate announcement later on Wednesday. The markets have priced in a rate hike at close to 100%, so it’s a given that the Fed will increase rates by 25 basis points, to 1.25%. What is less clear, however, is what the Fed has planned in the second half of 2017. Analysts are expecting a “dovish hike”, meaning that together with the rate increase, the Fed rate statement will be cautious in tone, and dovish regarding additional rate hikes. Earlier in the year, three rate hikes in 2017 seemed almost a given, but currently, the odds of a September move are just 28%. There are two items which could affect the movement of the dollar. First, the Fed Economic Projections will detail forecasts of inflation, growth and unemployment, and most importantly, the rate hike path. With the US economy performing better in the second quarter, there’s a strong likelihood that the Fed will not moderate its rate hike projections,which is good news for the dollar. Secondly, the markets will be looking for details regarding its plan to lower the $4.2 trillion balance sheet. If the Fed outlines a plan to reduce its holding in H2, the dollar could respond positively. Another variable is the political paralysis which has engulfed Washington. With the  Trump administration spending most of its energy on damage control, little progress is being made with regard to Trump’s agenda of tax reform and major spending on infrastructure. The markets are becoming more skeptical about Trump’s ability to work with Congress, and if this sentiment is shared by the Fed, it is likely to sound dovish regarding rate hikes in September or December.

Almost overshadowed by the Fed’s rate announcement, the US will release key consumer numbers later on Wednesday. Retail Sales, the key gauge of consumer spending, is expected to drop to 0.1%. On the inflation front, CPI is projected to remain at 0.2%. On Tuesday, PPI dropped to a flat 0.00%, down from 0.5% a month earlier. Will CPI follow suit and lose ground in the May report? If so, the dollar could lose ground against major rivals, such as the euro.

Dollar to be Dot Plot Driven

EUR/USD Fundamentals

Wednesday (June 14)

• 2:00 German Final CPI. Estimate +0.5%. Actual -0.2%
• 5:00 German Employment Change. Estimate 0.3%. Actual 0.4%
• 5:00 Eurozone Industrial Production. Estimate 0.5%. Actual 0.5%
• 5:35 German 10-y Bond Auction. Actual 0.26%
• 8:30 US CPI. Estimate 0.2%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Core Retail Sales. Estimate 0.2%
• 8:30 US Retail Sales. Estimate 0.1%
• 10:00 US Business Inventories. Estimate -0.1%
• 10:30 US Crude Oil Inventories
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.25%
• 14:30 US FOMC Press Conference

Thursday (June 15)

• 8:30 US Unemployment Claims. Estimate 241K
• 8:30 US Philly Fed Manufacturing Index. Estimate 25.5

*All release times are EDT

*Key events are in bold

EUR/USD for Wednesday, June 14, 2017

EUR/USD Wednesday, June 14 at 6:30 EDT

Open: 1.1209 High: 1.1225 Low: 1.1205 Close: 1.1209

EUR/USD Technical

EUR/USD showed little movement in the Asian session. The pair edged higher in European trade but has retracted

• 1.1122 is providing support
• 1.1242 is the next resistance line

Further levels in both directions:

• Below: 1.1122, 1.0985 and 1.0873
• Above: 1.1242, 1.1366, 1.1465 and 1.1534
• Current range: 1.1122 to 1.1242

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged this week. Currently, short positions have a majority (69%), indicative of EUR/USD breaking out and gaining 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.