EUR/USD – Euro Under Pressure After Fed Rate Move

EUR/USD is uneventful on Friday, as the pair trades at 1.0830 in the European session. In economic news, It’s a quiet wrap-up to the week, with no major releases out of the Eurozone or the US on Friday. The markets will be listening closely to remarks from FOMC member Jeffrey Lacker, the first Federal Reserve Bank President to speak at a public event after the historic rate hike of 0.25%.

On Wednesday, the Federal Reserve raised interest rates by 0.25%, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, this led to tremendous speculation in the markets. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and this week’s losses by EUR/USD of about 100 points is not a huge move, given the magnitude of a US rate hike for the first time in almost 10 years.

Although the small rate hike has not shaken up the currency markets and is expected to have limited economic impact, the psychological angle of the rate move cannot be overestimated, as the Fed has given the US economy a critical vote of confidence, and has indicated that additional rates are likely over the course of 2016. The Fed’s strategy contrasts sharply with the bungled approach of Mario Draghi at the ECB, who hinted that the ECB would take significant easing steps at its December meeting, but failed to deliver as the ECB did little more than extend the current QE program for another six months. This led to complete turmoil in the markets, resulting in a sharp ascent by the euro.

There was positive employment news out of the US on Thursday, as Unemployment Claims fell to 271 thousand last week, down from 282 thousand. The US labor market has improved nicely, as the economy is close to full employment, with jobless claims and the unemployment rate at low levels. This is a major reason that the Federal Reserve felt comfortable tightening monetary policy and raising interest rates at the present time. Meanwhile, the US manufacturing sector continues to struggle, as the Philly Fed Manufacturing Index came in at -5.9 points, its third decline in four months.

Overshadowed by the market hype leading up to the Fed rate hike, Eurozone releases enjoyed a positive week. On the manufacturing front, German, French and Eurozone Manufacturing PMIs all slightly exceeded their estimates, and all remained above the 50-point level, which indicates expansion in the manufacturing sector. Earlier in the week, German and Eurozone ZEW confidence reports both improved sharply. On Thursday, German Ifo Business Climate remained steady, posting a strong reading of 108.7 points. However, this was short of the estimate of 109.2 points. These solid numbers have helped bolster the euro, which even with this week’s losses, has gained about 270 points against the US dollar in the month of December.

EUR/USD Fundamentals

Friday (Dec. 18)

• 9:00 Eurozone Current Account. Estimate 32.2B
• 14:45 US Flash Services PMI. Estimate 55.9 points
• 18:00 US FOMC Member Jeffrey Lacker Speaks

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Friday, December 18, 2015

EUR/USD December 18 at 9:30 GMT

EUR/USD 1.0824 H: 1.0869 L: 1.0804

EUR/USD Technical

• EUR/USD posted losses in the Asian session and has been uneventful in European trade.
• 1.0847 remains busy and has switched to a resistance role. It is a weak line
• 1.0732 is providing support
• Current range: 1.0732 to 1.0847

Further levels in both directions:

• Below: 1.0732, 1.0659 and 1.0550
• Above: 1.0847, 1.0941, 1.1087 and 1.1172

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Friday, reflective of the lack of movement from the pair. Short positions command a strong majority (62%). This is indicative of trader bias towards the euro continuing to lose ground.

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.