EUR/USD – Euro Yawns as ECB Holds Steady Course

The euro started the week with some strong movement, but has since been uneventful. In the Friday session, EUR/USD is trading at 1.1030. On the release front, German and Eurozone PMIs were within expectations. In the US, after a busy day on Thursday, there is only one minor event on today’s schedule – Flash Manufacturing PMI. The index is expected to improve to 51.9 points, indicative of slight expansion.

There were no surprises from Eurozone PMI reports, and the euro remains almost unchanged. German and Eurozone Manufacturing PMIs came in at 53.7 and 51.9 respectively, indicating expansion. However, French Manufacturing PMI came in at 48.6 points. This indicator has managed to crack the 50-point threshold (which separates expansion from contraction) only once in 2016, pointing to ongoing contraction in the French manufacturing sector. France, the second largest economy in the Eurozone, continues to struggle, and weak economic conditions on the continent as well as Britain’s imminent exit from the EU could mean a bumpy ride for the French economy in the second half of 2016.

On Thursday, the ECB followed the cue of the BoE and did not lower the benchmark rate of 0.00%. There had been some speculation that the bank might extend its QE program of €80 billion/mth beyond March 2017, but ECB head Mario Draghi did not bite. Draghi claimed that the asset-purchase program had been “quite successful”, an assertion that many market players would dismiss as positive spin, given current inflation levels are nowhere near the ECB’s stated target of around 2 percent. Draghi trotted out his usual message that the bank stood ready to act “using all the instruments available within its mandate”.  The situation has become further complicated with the recent Brexit vote, as Britain, the second largest economy in Europe, will be soon be waving goodbye to the EU. Recent data in both the UK and Europe point to weaker consumer indicators, but the markets will have to wait until September for some hard numbers to begin to gauge the effect of Brexit on the Eurozone and British economies.

With major central banks in the spotlight, it’s the turn of the Federal Reserve next week. The Fed meets for a policy meeting on July 27 but is unlikely to announce a rate hike at that time, given current economic conditions in the US. Is the Federal Reserve leaning more towards a rate hike before the end of the year? The markets appear to think so, as the chances of a rate hike this year has been priced in at 47%, up from just 20% at the start of July. This positive sentiment is a result of improved US economic data over the past week. Another rate hike will be data-dependent, so if key indicators beat expectations, speculation of a rate hike will continue to increase. However, the Fed will be hesitant to make a move if inflation remains stuck at very low levels, nowhere near the Fed’s target of around 2 percent.

EUR/USD Fundamentals

Friday (July 22)

• 7:00 French Flash Manufacturing PMI. Estimate 48.1. Actual 48.6
• 7:00 French Flash Services PMI. Estimate 49.6. Actual 50.3
• 7:30 German Flash Manufacturing PMI. Estimate 53.6. Actual 53.7
• 7:30 German Flash Services PMI. Estimate 53.3. Actual 54.6
• 8:00 Eurozone Flash Manufacturing PMI. Estimate 52.1. Actual 51.9
• 8:00 Eurzone Flash Services PMI. Estimate 52.3. Actual 52.7
• 9:00 Italian Retail Sales. Estimate 0.2%
• 13:45 US Flash Manufacturing PMI. Estimate 51.9

* Key releases are in bold

*All release times are GMT

EUR/USD for Friday, July 22, 2016

EUR/USD July 22 at 9:30 GMT

Open: 1.1031 High: 1.1041 Low: 1.1016 Close: 1.1027

EUR/USD Technical

• EUR/USD has shown very limited movement in the Asian and European sessions
• 1.1054 is a weak resistance line
• 1.0925 is providing strong support

Further levels in both directions:

• Below: 1.0925, 1.0821 and 1.0708
• Above: 1.1054, 1.1150, 1.1278 and 1.1376
• Current range: 1.0925 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.  Short positions have a majority (55%), indicative of trader bias towards EUR/USD breaking out and moving 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.