EUR/USD – Euro Takes Hit As Swiss Central Bank Dumps Cap

EUR/USD has stabilized on Friday, after recording sharp losses a day earlier. The euro reacted negatively as the Swiss National Bank abandoned its cap against the euro on Thursday. Taking a look at Friday’s events, German CPI was unchanged at 0.0%. There was no relief from Eurozone CPI, which dropped -0.1%, the indicator’s first decline since October 2009. In the US, it’s another busy day, highlighted by CPI and the UoM Consumer Sentiment.

Currency markets were in shock on Thursday, as the Swiss National Bank suddenly terminated its cap on the exchange rate between the euro and the franc, which was set a floor of 1.20 for EUR/CHF. The cap had been in place since 2011, and the move marks a major policy reversal for the normally conservative Swiss central bank. Market reaction was swift, as the euro dropped some 15% against the franc and slipped 160 points against the US dollar. Why the dramatic move by the Swiss? One reason is an attempt to fight deflation, which is hurting the Swiss economy. As well, the SNB has been buying large amounts of euros to keep EUR/CHF within the cap, and with the euro having fallen to 10 years low, the central bank may have soured on the common currency. The stunning move by the SNB indicates that the SNB believes that the ECB will implement quantitative easing as its policy meeting, which could push the euro down even further.

Thursday was a disappointing day in for US releases. Employment numbers slipped on Thursday, as Unemployment Claims surprised with a reading of 316 thousand. This was well above the estimate of 299 thousand and was the highest reading since June 2014. However, the first full week of the year often shows a spike in claims, since holiday workers are dismissed, resulting in a higher number of claims. Elsewhere, PPI posted a decline of 0.3%, matching the forecast. Manufacturing data was mixed, as the Empire State Manufacturing Index rose to 10.3 points, while the Philly Fed Manufacturing Index slipped to 6.3 points, its worst showing in 11 months.

EUR/USD for Friday, January 16, 2015

EUR/USD January 16 at 10:20 GMT

EUR/USD 1.1625 H: 1.1649 L: 1.1600

 

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1340 1.1426 1.1525 1.1634 1.1734 1.1802

 

  • EUR/USD has shown little movement in the Asian and European sessions, as the pair continues to trade close to the 1.1625 line.
  • 1.1525 is providing strong support.
  • On the upside, 1.1634 is fluid and could see more action during the day. 1.1734 is stronger.
  • Current range: 1.1525 to 1.1634

Further levels in both directions:

  • Below: 1.1525, 1.1426, 1.1340 and 1.1154
  • Above: 1.1634, 1.1734, 1.1802, 1.1926 and 1.2042

 

OANDA’s Open Positions Ratio

EUR/USD is almost unchanged on Friday. This is consistent with the lack of movement we are seeing from the pair. The ratio is close to a split between long and short open positions, indicative of a lack of trader bias towards where the pair is headed next.

EUR/USD Fundamentals

  • 7:00 German Final CPI. Estimate 0.0%. Actual 0.0%.
  • 7:45 French Governor Budget Balance. Estimate -90.8B.
  • 10:00 Eurozone Final CPI. Estimate -0.2%.
  • 10:00 Eurozone Final Core CPI. Estimate 0.8%.
  • 13:30 US CPI. Estimate -0.3%.
  • 13:30 US Core CPI. Estimate 0.1%.
  • 14:15 US Capacity Utilization Rate. Estimate 80.2%.
  • 14:15 US Industrial Production. Estimate 0.1%.
  • 14:55 US Preliminary UoM Consumer Sentiment. Estimate 94.2 points.
  • 14:55 US Preliminary UoM Inflation Expectations.
  • 16:00 US FOMC Member John Williams Speaks.
  • 21:00 US TIC Long-Term Purchases. Estimate 27.3B.

*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.