EUR/USD: Dollar Rally Continues on Yellen Remarks

EUR/USD continues to point southward on Wednesday. In the European session, the pair is trading in the low-1.35 range. The dollar is broadly higher following remarks from Janet Yellen on Tuesday concerning an interest rate hike. The Fed chair continues with her testimony on Wednesday, this time before the House Financial Services Committee. Today’s US highlight is PPI, with the markets expecting a small gain of 0.2% for the June release. Eurozone Trade Balance softened in June, while the Italian release improved. Later to come is the German 10-year Bond Auction.

The dollar responded positively to Fed chair Yellen’s testimony before a Senate committee on Tuesday. Yellen stated that given current economic conditions, monetary stimulus was still required, but rates could increase sooner than expected if inflation and job numbers improved more quickly than forecast. The markets were quick to give a thumbs-up to the prospect of earlier rate increases, and EUR/USD continues to lose ground. The Fed’s asset purchase program (QE) has flooded the economy with over $2 trillion, keeping interest rates at ultra-low levels, but the Fed has been steadily reducing the program since last December. Currently, the Fed is pumping $45 billion/month into the economy, and the next taper is expected in August, with plans to terminate QE in October.

US retail sales releases, the primary indicators of consumer spending, marked the first key events of the week. Retail Sales slipped to 0.2%, well off the estimate of 0.6%. There was better news from Core Retail Sales, which excludes the most volatile items included in Retail Sales. The indicator improved to 0.4%, a three-month high. This was just shy of the estimate of 0.5%. There was excellent news from the manufacturing sector, as the Empire State Manufacturing Index jumped to 25.6 points, its third straight rise.

More German economic data, more bad news. This seems to be the latest unwanted theme from the largest economy in the Eurozone, which continues to post weak data, as underscored by Tuesday’s German ZEW Economic Sentiment. The highly regarded survey of institutional investors and analysts slipped to 27.1 points, short of the estimate of 28.9 points. The indicator has been falling steadily since last November, when it was above the 60-point level. The June figure is the weakest we’ve seen since November 2012. Eurozone ZEW Economic Sentiment brought no relief, as it plunged to 48.1 points, down from 58.4 a month earlier. The estimate stood at 62.3 points. These weak numbers have further raised concerns about the health of the German and Eurozone economies, and the euro could lose more ground.

 

EUR/USD for Wednesday, July 16, 2014

EUR/USD July 16 at 9:30 GMT

EUR/USD 1.3542 H: 1.3672 L: 1.3541

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3295 1.3346 1.3487 1.3585 1.3651 1.3786

 

  • EUR/USD was steady in the Asian session. The pair has posted slight losses in European trading.
  • 1.3487 is providing support.
  • 1.3585 has reverted to a resistance role as the pair trades at lower levels. 1.3651 is next.
  • Current range: 1.3487 to 1.3585

Further levels in both directions:

  • Below: 1.3487, 1.3346, 1.3295 and 1.3175
  • Above: 1.3585, 1.3651, 1.3786 and 1.3870

 

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions on Wednesday, continuing the trend seen a day earlier. This is not consistent with the movement of the pair, as the euro continues to post losses. The ratio has a majority of short positions, indicative of trader bias towards the dollar continuing to post gains against the euro.

EUR/USD Fundamentals

  • 8:00 Italian Trade Balance. Actual 3.68B. Estimate 3.23B.
  • 9:00 Eurozone Trade Balance. Estimate 16.3B. Actual 15.3B.
  • Tentative: German 10 year Bond Auction.
  • 12:30 US PPI. Estimate 0.2%.
  • 12:30 US Core PPI. Estimate 0.2%.
  • 13:00 US TIC Long Term Purchases. Estimate 27.4B.
  • 13:15 US Capacity Utilization Rate. Estimate 79.4%.
  • 13:15 US Industrial Production. Estimate 0.4%.
  • 14:00 US Federal Reserve Chair Janet Yellen Testifies Before House Financial Services Committee.
  • 14:00 US NAHB Housing Market Index. Estimate 51 points.
  • 14:30 US Crude Oil Inventories. Estimate -2.1M.
  • 16:00 US FOMC Member Richard Fisher Speaks.
  • 18:00 US Beige Book.

*Key releases are highlighted in bold

*All release times are GMT

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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.