EUR/USD – Struggling Euro Steady After Fed Rate Fallout

The euro has edged higher Monday, as EUR/USD trades at 1.0450. On the release front, it’s a quiet start to the trading week. In the Eurozone, German Ifo Business Climate improved to 111.0 points, above the forecast of 110.7 points. The sole US release is Flash Services PMI, with the index expected to rise to 55.5 points.

German confidence indicators continue to impress in the fourth quarter. Ifo Business Climate improved  to 111.0 points in December, its highest level since April 2014. Investors and analysts also remain confident about the economy, as underscored by the December ZEW Economic Sentiment reports. The German indicator remained at 13.8 points, although this was short of the forecast of 14.2 points. The Eurozone report jumped to 18.1, beating the estimate of 16.5. These figures point to optimism over growth aspects in the Eurozone and in Germany, the bloc’s number one economy.

The US dollar has enjoyed broad gains since the Fed raised rates last week, and the euro dropped as low as 1.0365 in the Thursday session. This marked its lowest level since January 2003. If the decline continues, we’re likely to hear growing talk about parity between the US dollar and the euro. The Fed deserves full marks for getting out the message loud and clear that it would raise rates at the December meeting. This marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year“. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimates. What’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the markets haven’t forgotten that after the hike in December 2015, the Fed said it expected to raise rates four times in 2015, but ended up raising rates only once. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. If Trump’s economic policies heat up the economy and boost inflation, we could see a number of rate hikes in 2017.

EURUSD Falls to 14 Year Low

EUR/USD Fundamentals

Monday (December 19)

• 9:00 German Ifo Business Climate. Estimate 110.7. Actual 111.0
• 11:00 German Buba Monthly Report
• 14:45 US Flash Services PMI. Estimate 55.2

*All release times are GMT

* Key events are in bold

EUR/USD for Monday, December 19, 2016

EUR/USD December 19 at 9:45 GMT

Open: 1.0446 High: 1.0480 Low: 1.0441 Close: 1.0450

EUR/USD Technical

• EUR/USD posted small gains in the Asian session and is flat in European trade
• 1.0414 is providing support
• 1.0506 is the next resistance line

Further levels in both directions:

• Below: 1.0414, 1.0287 and 1.0170
• Above: 1.0506, 1.0616 and 1.0708
• Current range: 1.0414 to 1.0506

OANDA’s Open Positions Ratio

EUR/USD ratio is showing gains in short positions. Currently, long positions have a majority (56%), indicative of trader bias towards EUR/USD continuing to move upwards.

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