EUR/USD – Steady Ahead of German Business Climate

The euro is steady on Tuesday, after sustaining sharp losses on Monday. EUR/USD is trading at the 1.10 line in the European session. On the release front, Germany will release Ifo Business Climate, a key event. The markets are expecting a strong reading of 107.0 points. In the US, there are two key releases – Existing Home Sales and CB Consumer Confidence.

The markets will be looking for a strong reading from German Business Climate, after some disappointing releases from the Eurozone’s largest economy. German PPI, which measure inflation in the manufacturing sector, looked dismal in January, with a decline of 0.7%. This was shy of the estimate of -0.3%. So it comes as no surprise that German Flash Manufacturing PMI also missed expectations, with a reading of 50.2 points, barely above the 50-line, which separates contraction and expansion. Eurozone Flash Manufacturing PMI was a bit better at 51.0 points, but also missed the estimate. The euro responded to the disappointing releases by dropping about 100 points and hitting 3-week lows against the US dollar. Eurozone’s manufacturing sector has been hit hard by the Chinese slowdown, as the Asian giant is the Eurozone’s second largest trading partner. These weak readings are making it increasingly difficult for the ECB to remain on the sidelines as the Eurozone economy continues to struggle. Will Mario Draghi and Co. make a move at the March policy meeting? Possible monetary moves include adopting negative interest rates (a step recently taken by the BoJ) as well as increasing the current quantitative easing scheme, which currently involves purchasing assets at 60 billion euros/mth. Either of these moves would likely shake up the currency markets and weaken the euro.

The Federal Reserve has been in the headlines in recent weeks, but the markets remain unclear regarding the timing of another rate hike. The Fed sent out a cautious message in last week’s policy minutes, which reiterated the central bank’s concern that turmoil in global markets could have negative repercussions for the US economy. Policymakers sent out a broad hint that a rate hike is unlikely in March, as they discussed “altering their earlier views of the appropriate path for the target range for the federal funds rate”. This could have a negative impact on the US dollar, as investors will be looking at other options if US rates do not move higher. Fed policymakers appear divided on the Fed’s upcoming strategy. Janet Yellen said last week that the Fed still planned to raise rates later in 2016, but FOMC member James Bullard argued that there was room to delay any rate moves, given global financial turmoil and weak US inflation. Many market players are skeptical that the Fed will make any moves before next year. Back in the heady days of December, the Fed hinted at a series of rate hikes during 2016, but the turmoil in the financial markets and the downturn in the US economy in early 2016 have left the timing of another hike in doubt.

Tuesday (Feb. 23)

• 2:00 German Final GDP. Estimate 0.3%. Actual 0.3%
• 4:00 German Ifo Business Climate. Estimate 107.0 points
• 9:00 Belgian NBB Business Climate. Estimate -3.5 points
• 9:00 S&P/CS Composite-20 HPI. Estimate 5.8%
• 10:00 US CB Consumer Confidence. Estimate 97.4 points
• 10:00 US Existing Home Sales. Estimate 5.37M
• 10:00 US Richmond Manufacturing Index. Estimate 2 points
• 20:30 US FOMC Stanley Fischer Speaks

Upcoming Key Events

Wednesday (Feb. 24)

• 10:00 US Existing Home Sales. Estimate 522K

*Key events are in bold

*All release times are EST

EUR/USD for Tuesday, February 23, 2016

EUR/USD February 23 at 3:40 EST

Open: 1.1025 Low: 1.0991 High: 1.1053 Close: 1.1009

EUR/USD Technical

• EUR/USD was flat in the Asian and European sessions
• There is resistance at 1.1087
• 10941 is providing support
• Current range: 1.0941 to 1.1087

Further levels in both directions:

• Below: 1.0941, 1.0847 and 1.0708
• Above: 1.1087, 1.1172, 1.1278 and 1.1349

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement, consistent with the lack of activity from EUR/USD. Short positions retain a strong majority of positions (54%). This points to trader bias towards the euro resuming the downward movement we saw on Monday.

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.