EUR/USD – Euro Under Pressure Ahead of US Retail Sales, Consumer Confidence

EUR/USD has dipped on Friday, erasing the gains made in the Thursday session. On the release front, the sole Eurozone release is Trade Balance. It’s a very busy day in the US, with the release of retail sales, PPI and UoM Consumer Confidence. The markets are expecting stronger readings from these indicators, and if these forecasts are correct, we could see the US dollar post broad gains in the North American session.

There was more good news from the US labor market, as unemployment claims sparkled again last week. The key indicator dropped to 246 thousand last week, down slightly from 249 thousand a week earlier. The estimate stood at 252 thousand, marking a tenth consecutive week that the indicator has beaten the forecast. Strong job numbers is one of the main arguments of proponents of a rate hike in December, as the labor market, which is close to capacity, continues to fuel steady economic growth.

There were no dramatic comments in the Federal Reserve minutes, but the minutes did underscore the division within the FOMC concerning monetary policy. This was already apparent in the September rate vote, when three members voted against the decision to maintain rates at 0.25 percent. The minutes indicated that some of the members who voted to hold rates chose to fall in line with Janet Yellen, but are in favor of raising rates “relatively soon”. The members in favor of a rate hike believe that ultra-low rates could lead to overly low unemployment levels which could result in inflation rising too quickly. Other policymakers argue that the there is still slack in the labor market, despite the official numbers, and leaving rates on hold could attract more people back into the work force and avoid a spike in inflation. Since there is significant support within the Fed (and the markets) for a rate hike in December, Janet Yellen will be under pressure to press the rate trigger in December. The markets have priced in a December hike at 60 percent and the positive sentiment could help the US dollar continue to move higher. The Fed will next meet in November, but analysts don’t expect a rate move just a week before the presidential election.

Eurozone confidence indicators have been buoyant in October. This has been a pleasant surprise, given that the economy is struggling, Brexit concerns are increasing and the banking sector appears in serious trouble. German ZEW Economic Confidence jumped to 6.2 points, while the Eurozone report climbed to 12.3 points. Both releases easily beat the estimates. Earlier in the week, Eurozone Sentix Investor Confidence report also improved, climbing to a 4-month high. Still, the sharp releases have failed to prop up the euro, which has declined 1.6 percent this week and dropped below the symbolic 1.10 level for the first time since late July.

EUR/USD Fundamentals

Friday (October 14)

• 9:00 Eurozone Trade Balance. Estimate 20.5B
• 12:30 US Core Retail Sales. Estimate 0.4%
• 12:30 US PPI. Estimate 0.2%
• 12:30 US Retail Sales. Estimate 0.6%
• 12:30 US Core PPI. Estimate 0.1%
• 12:30 US FOMC Member Eric Rosengren Speaks
• 14:00 US Business Inventories. Estimate 0.1%
• 14:00 US Preliminary UoM Consumer Sentiment. Estimate 92.1
• 14:00 US Preliminary UoM Inflation Expectations
• 17:30 US Federal Chair Janet Yellen Speaks
• Tentative – Federal Budget Balance. Estimate 30.oB

*All release times are EDT

* Key events are in bold

EUR/USD for Friday, October 14, 2016

EUR/USD October 14 at 8:20 GMT

Open: 1.1047 High: 1.1057 Low: 1.1009 Close: 1.1013

EUR/USD Technical

• EUR/USD was flat in the Asian session and has recorded slight losses in European trade
• 1.0957 is providing support
• 1.1054 remains a weak resistance line

Further levels in both directions:

• Below: 1.0957, 1.0821 and 1.0708
• Above: 1.1054, 1.1150, 1.1278 and 1.1376
• Current range: 1.0957 to 1.1054

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged on Friday, consistent with the lack of movement from EUR/USD. Currently, long positions command a majority (59%), indicative of trader bias towards EUR/USD breaking out and moving upwards.

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.