EUR/USD – Sharp German ZEW Economic Sentiment Pushes Euro Above 1.20

The euro has posted slight gains in the Tuesday session. Currently, EUR/USD is trading at 1.1993, up 0.32% on the day. Earlier in the day, the pair punched above the symbolic 1.20 level. On the release front, German ZEW Economic Sentiment climbed to 17.0 points, easily beating the forecast of 12.3 points. Eurozone ZEW Economic Sentiment improved to 31.7, but fell short of the estimate of 32.4 points. The US will release two key housing events – Building Permits and Housing Starts. On Wednesday, the Federal Reserve winds up its policy meeting and will release a rate statement.

The German economy continues to look strong, and institutional investors and analysts like what they see. German ZEW Economic Sentiment, jumped to 17.1 points in September, rebounding from a weak reading of 10.0 in August. The ZEW report noted that growth in the second quarter remained strong, and both the public and private sectors were marked by increased investment. As well, global demand remained steady, and a stronger euro had not had a negative impact on the German economy.

The eurozone economy has rebounded in 2017, and much of the credit goes to Germany, the largest economy in the bloc. At the same time, inflation levels have been stubbornly low. This has complicated the ECB’s plans to reduce its quantitative easing scheme (QE), although ECB President Mario Draghi has said that the ECB will announce its plans to reduce QE at the October policy meeting. QE is scheduled to end in December, and policymakers will have to balance opposing interests as to what happens next. Germany, with its robust economy, would like to remove stimulus entirely, while less affluent eurozone members want to retain an accommodative monetary policy. We’re likely to see some compromise, in which stimulus is extended into 2018, but will be tapered from its current level of EUR 60 billion/month.

The Federal Reserve will be back in the spotlight on Wednesday. There is virtually no chance that the benchmark rate of 1.25% will change, so the markets are focusing on the Fed’s bloated balance sheet, which currently stands at $4.2 trillion. Earlier in the year, the Fed outlined plans to reduce the balance sheet by not replacing some maturing bonds, starting at $10 billion/month, and gradually moving higher. This move can be viewed as a mini-rate hike, and could provide a boost for the US dollar against major rivals, such as the euro. The Fed is still debating whether it will raise rates in December, as persistently low inflation has hampered plans for a third rate hike in 2017. However, the odds of a December increase have been moving higher in September, and are currently at 56%.

EUR/USD Fundamentals

Tuesday (September 19)

• 4:00 Eurozone Current Account. Estimate 22.3B. Actual 25.1B
• 5:00 German ZEW Economic Sentiment. Estimate 12.3. Actual 17.0
• 5:00 Eurozone ZEW Economic Sentiment. Estimate 32.4. Actual 31.7
• 8:30 US Building Permits. Estimate 1.22M
• 8:30 US Current Account. Estimate -115B
• 8:30 US Housing Starts. Estimate 1.17M
• 8:30 US Import Prices. Estimate 0.4%

Wednesday (September 20)

• 10:00 US Existing Home Sales. Estimate 5.46M
• 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

*All release times are GMT

*Key events are in bold

EUR/USD for Tuesday, September 19, 2017

EUR/USD Tuesday, September 19 at 6:50 EDT

Open: 1.1955 High: 1.2007 Low: 1.1950 Close: 1.1993

EUR/USD Technical

EUR/USD has edged higher in the Asian and European sessions

• 1.1876 is providing support
• 1.1996 was tested earlier in resistance and could break during the Tuesday session

Further levels in both directions:

• Below: 1.1876, 1.1712 and 1.1611
• Above: 1.1996, 1.2018, 1.2108 and 1.2221
• Current range: 1.1876 to 1.1996

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Tuesday session. Currently, short positions have a majority (63%), indicative of EUR/USD continuing to move lower.

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.