EUR/USD – Struggling Euro Dips to 10-Week Lows

EUR/USD has posted small gains on Monday, after the pair considerable losses in the Friday session. The pair is trading at 1.1130, close to 10-week lows. On the release front, there are no major events on the schedule. German Import Prices declined 0.1%, missing expectations. Later in the day, Germany releases Preliminary CPI. US markets are closed for Memorial Day, so we can expect light trade on Monday. On Tuesday, the US releases CB Consumer Confidence.

The week wrapped up with the US releasing Preliminary GDP for the first quarter. The key indicator, which can be viewed as an economic report card, posted a gain of 0.8%, matching the forecast. This was an improvement above Advanced GDP, which came in at 0.5%. Still, the economy slowed down considerably compared to the fourth quarter of 2015. The export sector has been hurt by the strong US dollar and weak global demand. Oil prices remain low, which has taken a sharp toll on the oil industry. Elsewhere, the UoM Consumer Sentiment report improved in April, climbing to 94.7 points. This marked the indicator’s highest level in 11 months, although it was short of the estimate of 95.7 points. The dollar responded positively to these releases on Friday, gaining about 80 points against the euro.

The Fed minutes have renewed speculation that the Fed may press the rate trigger in June, and this has bolstered the US dollar. The minutes were more hawkish than expected, resulting in strong volatility in the currency markets. Odds of a rate hike in June have sharply increased, but the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. Last week, FOMC member John Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between the hawkish message some FOMC members are sending out and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

As the largest economy in the Eurozone, German numbers are closely watched, as they often serve as a bellwether for macro trends in the Eurozone. Last week’s German indicators were a mix. German Ifo Business Climate climbed to 107.7 points, above the estimate of 106.9. This was the indicator’s best showing in five months. However, German and Eurozone ZEW Economic Sentiment reports both softened in May and missed expectations, pushing the euro lower. Earlier in the week, German Final GDP recorded a respectable gain of 0.7% in the first quarter. This figure was unchanged from German Preliminary GDP, which also posted a 0.7% gain. With the ECB holding a policy meeting on Thursday, German releases will play a key role in the ECB’s decision-making process. Stronger German data would point to an improving Eurozone economy and reduce pressure on the ECB to take monetary action such as cutting interest rates into negative territory.

EUR/USD Fundamentals

Monday (May 30)

• 00:20 US FOMC Member James Bullard Speaks
• 6:00 German Import Prices. Estimate 0.4%. Actual -0.1%
• All Day – German Preliminary CPI. Estimate 0.3%
• 6:45 French Consumer Spending. Estimate 0.1%. Actual -0.1%
• 7:00 Spanish Flash CPI. Estimate -1.0%. Actual -1.0%
• Tentative – Italian 10-year Bond Auction

Updated Key Estimates

Tuesday (May 31)

14:00 US CB Consumer Confidence. Estimate 96.1

*All release times are GMT

EUR/USD for Monday, May 30, 2016

EUR/USD May 30 at 9:30 GMT

Open: 1.1122 Low: 1.1097 High: 1.1138 Close: 1.1132

EUR/USD Technical

• EUR/USD was flat in the Asian session. The pair has posted small gains in European trade
• 1.1172 is a weak resistance line
• 1.1054 is providing support

Further levels in both directions:

• Below: 1.1054, 1.0909 and 1.0821
• Above: 1.1172, 1.1278, 1.1378 and 1.1495
• Current range: 1.1054 to 1.1172

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged on Monday, consistent with the lack of significant movement from EUR/USD. Currently, short and long positions are almost evenly split, indicative of a lack of trader bias as to what direction EUR/USD will take next.

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.