EUR/USD – Markets Await ECB Rate Decision

EUR/USD has posted slight losses on Thursday, as the pair trades at 1.1310 the European session. On the economic front, the Spanish Unemployment Rate dropped to 21.2% in the second quarter, beating expectations. The ECB will set its new interest rate at its monthly policy meeting, followed by a press conference. In the US, we’ll get a look at Unemployment Claims, with the indicator expected to rise to 266 thousand. Traders should keep an eye on Friday’s key events – French Manufacturing PMI and German Manufacturing PMI.

What can the markets expect from the ECB on Thursday? With the Eurozone struggling with little growth and a lack of inflation, the ECB is under growing pressure to take action and kick-start the ailing economy. There isn’t much room for the central bank to lower interest rates, which currently stand at record low levels of 0.05%. This leaves the ECB the option of expanding the current QE program of EUR 60 billion/mth. The ECB has bought almost half a trillion euros of debt under QE, but the bloc’s economy hasn’t responded. Analysts expect the ECB to increase QE before the end of the year, but traders should not discount the possibility of further stimulus at the ECB meeting on Thursday. If the ECB announces further stimulus measures on Thursday, we can expect the euro to lose ground against the dollar. The ECB could also reduce the direct deposit rate, which currently stands at -0.2%, but this does not appear likely.

The German economy, the bloc’s locomotive, continues to stumble. German PPI, which measures inflation in the manufacturing sector, is struggling, having posted three declines in the past four months. The reading of -0.4% in September fell short of the estimate of -0.1%, pointing to deflation in the Eurozone’s largest economy. There was further bad news this week as the Eurozone trade surplus narrowed to EUR 17.7 billion in August, short of the estimate of EUR 20.1 billion. This marked the bloc’s smallest surplus in 14 months. Meanwhile, the Spanish unemployment rate fell to 21.2% in the second quarter, its lowest level in over five years.

Recent US data has not been has strong as hoped, with key numbers sending a mixed message about the health of the economy. This has reduced the likelihood of a rate hike by the Federal Reserve before the end of 2015. The markets remain frustrated about the Fed’s lack of communication with the markets, as FOMC members continue to send out contradictory messages about the Fed’s plans. Still, an improvement in US numbers, especially employment and consumer indicators, could quickly revive speculation about a rate hike and boost the US dollar. This means that the upcoming US Unemployment Claims report will be carefully monitored, and an unexpected reading could have a sharp impact on the direction of EUR/USD. The estimate stands at 266 thousand, higher than the previous report of 255 thousand.

EUR/USD Fundamentals

Thursday (Oct. 22)

• 7:00 Spanish Unemployment Rate. Estimate 21.9%. Actual 21.2%.
• 11:45 ECB Minimum Bid Rate. Estimate 0.05%.
• 12:30 ECB Press Conference
• 12:30 US Unemployment Claims. Estimate 266K.
• 13:00 US HPI. Estimate 0.4%.
• 14:00 Eurozone Consumer Confidence. Estimate -7 points.
• 14:00 US Existing Home Sales. Estimate 5.38M.
• 14:00 US CB Leading Index. Estimate 0.0%.
• 14:30 US Natural Gas Storage. Estimate 89B.

Upcoming Events

Friday (Oct. 23)

•  7:00 French Flash Manufacturing PMI. Estimate 50.2 points.
• 7:30 German Flash Manufacturing PMI. Estimate 51.8 points.

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Thursday, October 22, 2015

EUR/USD October 22 at 10:10 GMT

EUR/USD 1.1314 H: 1.1351 L: 1.1302

EUR/USD Technical

• EUR/USD was uneventful in the Asian session and posted slight losses early in European trade.
• On the downside, 1.1296 is under strong pressure and could be tested during the day.
• 1.1392 is an immediate resistance line.
• Current range: 1.1296 to 1.1392

Further levels in both directions:

• Below: 1.1296, 1.1214, 1.1105 and 1.1017
• Above: 1.1392, 1.1470, 1.1658, 1.1712 and 1.1871

OANDA’s Open Positions Ratio

EUR/USD ratio continues to show a strong majority of short positions (59%) on Thursday. This points to trader sentiment in favor of the dollar breaking out and gaining ground against the euro.

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.