EUR/USD – Weak Euro Shrugs off FOMC Minutes, Markets Mull Rate Move

EUR/USD has posted small gains on Thursday, as the pair trades at the 1.07 line in the European session. In economic news, Eurozone Current Account jumped to an 8-month high, with a surplus of EUR 29.4 billion. Later on Thursday, the ECB will release a summary of its most recent policy meeting. Over in the US, today’s key events are Unemployment Claims and the Philly Fed Manufacturing Index. On Wednesday, the Federal Reserve released the minutes of its most recent policy meeting, as the guessing game over a rate hike in December continues.

All eyes were on the Fed minutes of the October 28 policy meeting, which were released on Wednesday. However, there were no surprises, and EUR/USD showed limited movement in response. The minutes noted that employment numbers had weakened in recent months, but analysts pointed out that this was prior to the stellar Nonfarm Payrolls report in October. On the inflation front, the minutes stated that Fed policymakers were confident that inflation would remain at stable levels.

Despite the Fed minutes sounding non-committal regarding a December rate hike, most analysts concur that the long-awaited move will indeed occur next month. Market expectations have risen to 66% that the Fed will make a move next month. Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi, Japan’s largest bank, said he would be “astounded” if the Fed did not raise rates at their next meeting on December 16, especially in light of the strong Nonfarm Payrolls report in October. One major weak spot in the economy is that of weak inflation levels, and the Fed has repeatedly stated that inflation is a prime factor in its decision-making process. Last week’s PPI was awful, posting a second straight decline. On Tuesday, CPI and Core CPI posted small gains of 0.2%, matching the forecast. Are these lukewarm readings enough to convince a majority of Fed members to vote in favor of a hike? Time will tell. Another important factor which must be remembered is that the markets now seem prepared for a small hike of 0.25% or 0.50%, and there is a growing view that a modest move would not cause unwanted turbulence on the global markets.

The euro continues to struggle, as the currency trades at its lowest levels since April. Is parity with the US dollar on the horizon? Goldman Sachs apparently thinks so, as the well-respected global investment firm issued a report which projects the euro falling to parity by the end of 2015, and EUR/USD falling to 0.95 by the end of March 2016. ECB head Mario Draghi signaled last week that the ECB was considering further easing measures as early as December, and many analysts expect the ECB to introduce a new stimulus package in order to kick start an economy beset with low growth and a lack of inflation. We could learn more about the ECB’s plans from the ECB Monetary Policy Meeting Accounts, which will be released later on Thursday. If the ECB and the Fed both make moves in December, the wobbly euro could get hit with a double whammy and drop sharply.

The US economy continues to show improvement in most areas, but the manufacturing sector continues to lag behind. Earlier this week, the Empire State Manufacturing Index posted its fourth straight decline, underlining worsening conditions in the manufacturing sector. In November, the indicator came in at -10.7 points, weaker than the forecast of -5.3 points. On Thursday, we’ll get another look at manufacturing data, with the release of the Philly Fed Manufacturing Index. This indicator has also struggled, posting two straight declines. The markets are expecting some improvement in the November report, with an estimate of 0.1 points.

EUR/USD Fundamentals

Thursday (Nov. 19)

• 8:00 German Buba President Jens Weidmann Speaks
• 9:00 Eurozone Current Account. Estimate Actual 29.4B. Estimate 18.3B
• 12:30 ECB Monetary Policy Meeting Accounts
• 13:30 US Unemployment Claims. Estimate 272K
• 15:00 US Philly Fed Manufacturing Index. Estimate 0.1 points
• 15:00 US CB Leading Index. Estimate 0.5%
• 15:30 US Natural Gas Storage. Estimate 23B
• 17:30 FOMC Member Dennis Lockhart Speaks
• 21:45 FOMC Member Stanley Fischer Speaks

Upcoming Key Events

Friday (Nov. 20)

• 8:00 ECB President Mario Draghi Speaks

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Thursday, November 19, 2015

EUR/USD November 19 at 10:45 GMT

EUR/USD 1.0696 H: 1.0717 L: 1.0667

EUR/USD Technical

• EUR/USD posted modest gains in the Asian session and is steady in European trading.
• 1.0732 is a weak resistance line.
• 1.0659 is providing weak support.
• Current range: 1.0659 to 1.0732

Further levels in both directions:

• Below: 1.0659, 1.05, 1.0359 and 1.0287
• Above: 1.0732, 1.0847 and 1.0941

OANDA’s Open Positions Ratio

EUR/USD ratio remains unchanged, reflective of the lack of significant movement from the pair. The ratio remains evenly split between long and short positions. This indicates a lack of trader bias as to what direction the pair 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.