EUR/USD – Euro Dips Below 1.10, Markets Keep Eye on ECB

EUR/USD is showing limited movement on Wednesday, as the pair trades at 1.0970 in the European session. On the release front, there are no Eurozone events on the schedule. On Thursday, the ECB will have its policy meeting and set interest rates for March. It’s a quiet day in the US, with just three releases, highlighted by Crude Oil Inventories.

The Eurozone economy continues to struggle, gripped by weak growth and inflation levels. The markets are looking for some salvation from the ECB, as policymakers gather for a key meeting on Thursday. Will Mario Draghi announce some monetary measures to kick-start the weak economy? Amongst the most likely measures that the ECB could adopt are expanding the EUR 1.1 trillion bond-purchase program (QE), or pushing the benchmark interest rate into negative territory. Either of these easing moves would likely push the euro lower. However, the markets have learned from experience that the ECB has often opted to hold the course, even after hinting that it would make a move. If the ECB balks and remains on the sidelines, we could see a repeat of what occurred after the January policy meeting, when the markets expected some relief but the ECB failed to deliver, resulting in huge gains by the euro. Traders should be prepared for volatility following the ECB rate announcement and press conference.

Weak global economic conditions, particularly the Chinese slowdown, have taken a toll on the Eurozone manufacturing sector, as European manufacturers are struggling to cope with less demand for their products. German manufacturers are also facing tough times, as China is a major export market for the Eurozone’s largest economy. Given this bleak background, German Industrial Production was a pleasant surprise in January, surging 3.3%. This was the indicator’s strongest gain since July 2011. German Factory Orders were not as strong, with the reading of -0.1% marking a second straight decline.

US Nonfarm Payrolls is one of the most important economic indicators, so an excellent January report should have buoyed the US dollar at against its major rivals late last week. The indicator impressed with a reading of 242 thousand, much higher than the estimate of 195 thousand. This was much stronger than the previous (revised) reading of 171 thousand. The US economy has added an average of 225,000 jobs per month since December, an impressive number considering that the economy has softened in the early part of 2016. Why then, did a stellar NFP release not impress the markets? The reason was that wage growth, which has consistently lagged behind other employment indicators, surprised the markets with a decline of 0.1% in January, the first drop in wages since December 2014. This indicator is closely linked to inflation, since an increase in wages means workers have more money to spend. The indicator’s decline means that that Federal Reserve’s inflation target of about 2.0% remains far off, so the Fed, which is keeping a close eye on the weak inflation picture, is unlikely to press the rate trigger at its policy meeting later this month.

 

EUR/USD Fundamentals

Wednesday (March 9)

  • 10:00 US Wholesale Inventories. Estimate -0.2%
  • 10:30 US Crude Oil Inventories. Estimate 3.0M
  • 13:01 US 10-year Bond Auction

Upcoming Key Events

Thursday (March 10)

  • 7:45 ECB Minimum Bid Rate. Estimate 0.05%
  • 8:30 ECB Press Conference
  • 8:30 US Unemployment Claims. Estimate 272K

*Key events are in bold

*All release times are EST

EUR/USD for Wednesday, March 9, 2016

EUR/USD March 9 at 5:00 EST

Open: 1.1000 Low: 1.0961 High: 1.1006 Close: 1.0967

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0708 1.0847 1.0941 1.1087 1.1172 1.1278
  • EUR/USD posted slight losses in the Asian session. The pair has shown marginal movement in European trade
  • There is resistance at 1.1087
  • 1.0941 is providing weak support. It could break during the day

Further levels in both directions:

  • Below: 1.0941, 1.0847, 1.0708 and 1.0616
  • Above: 1.1087, 1.1172 and 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio has shown some movement towards short positions. Short positions have a majority (56%), indicative of trader bias towards EUR/USD continuing to head downwards.

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.