EUR/USD – Euro Flat as Markets Digest ECB Statement

EUR/USD is almost unchanged on Friday, as the pair is trading slightly below the 1.13 line in the European session. On Thursday, the ECB maintained interest rate levels, and ECB head Mario Draghi was dovish in his remarks. Taking a look at Friday’s releases, German Manufacturing PMI beat expectations, but Eurozone Manufacturing PMI missed the estimate. The sole US event on the schedule is Flash Manufacturing PMI.

As expected, the ECB remained on the sidelines at its April policy meeting. The ECB left the benchmark interest rate at a record low of zero. The deposit rate remained at -0.4%, and the marginal lending rate stayed at 0.25%. As well, the ECB kept its asset-purchase program (QE), at EUR 80 billion/month. In March, the Governing Council raised QE from EURO 60-80 billion euros/month. In a follow-up press conference, ECB president Mario Draghi presented a dovish message, hinting that further rate cuts remained a strong possibility. Draghi said that he expected interest rates to “remain at present or lower, levels for an extended period of time and well past the horizon of asset purchases“.  Given that the ECB has put in place its QE program until March 2017, it seems a safe bet that the ECB will maintain very low interest rates well into next year. The euro showed some strong volatility on Thursday, climbing 100 points before reversing and giving up these gains, closing the session almost unchanged.

The US labor market continues full steam ahead, as the weekly unemployment claims indicator fell to 247 thousand, well below the forecast of 265 thousand. This was the lowest weekly count since November 1973, and the four-week indicator, which is considered more accurate, also dropped compared to the previous release. The good news was tempered by a disappointing key manufacturing report. The Philly Fed Manufacturing Index surprised the markets with a decline of -1.6 points, as the estimate stood at 8.1 points. This reading marked the third decline in four readings, as the manufacturing sector remains a weak area of the US economy. Uncertainty in global economic conditions has lead to weaker demand for US goods and put the squeeze on domestic manufacturers.

The Eurozone continues to struggle with low inflation levels, and the threat of deflation remains a constant worry for policymakers. However, there have been some encouraging signs on the inflation front. Last week, there were strong CPI numbers out of Germany and France, the two largest economies in the bloc. On Wednesday, German PPI improved to 0.0%, ending a streak of seven straight declines. Still, inflation levels are far below the ECB target of about 2.0%, despite significant monetary moves by the central bank in March. Earlier in the week, the euro posted gains in response to strong ZEW Economic Sentiment reports from the Eurozone and Germany. The Eurozone indicator climbed 21.5 points, crushing the estimate of 13.9 points. The German ZEW report improved to 11.2 points, above the forecast of 8.2 points and marking a 4-month high. The reports point to increased optimism and could signal that the Eurozone and German economies are gaining strength.

EUR/USD Fundamentals

Friday (April 22)

• 7:00 French Flash Manufacturing PMI. Estimate 49.9. Actual 48.3
• 7:00 French Flash Services PMI. Estimate 50.2. Actual 50.8
• 7:30 German Flash Manufacturing PMI. Estimate 51.0. Actual 51.9
• 7:30 German Flash Services PMI. Estimate 55.1. Actual 54.6
• 8:00 Eurozone Flash Manufacturing PMI. Estimate 51.8. Actual 51.5
• 8:00 Eurozone Flash Services PMI. Estimate 53.3. Actual 53.2
• 9:00 Italian Retail Sales. Estimate 0.2%
• Day 1 – ECOFIN Meetings
• All Day – Eurogroup Meetings
• 13:45 US Flash Manufacturing PMI. Estimate 51.9

Upcoming Key Events

Monday (April 25)

• 8:00 German Ifo Business Climate
• 14:00 US New Home Sales

*Key events are in bold

*All release times are GMT

EUR/USD for Friday, April 22, 2016

EUR/USD April 22 at 9:00 GMT

Open: 1.1289 Low: 1.1266 High: 1.1309 Close: 1.1272

EUR/USD Technical

• EUR/USD posted slight gains in the Asian session but has retracted in European trade
• There is resistance at 1.1378
• 1.1278 remains fluid. It was tested in resistance earlier and could see further action during the day

Further levels in both directions:

• Below: 1.1278, 1.1172, 1.1087 and 1.0989
• Above: 1.1378, 1.1495 and 1.1609
• Current range: 1.1278 to 1.1378

OANDA’s Open Positions Ratio

EUR/USD ratio remains almost unchanged this week, consistent with the lack of net movement from EUR, which continues to hug the 1.13 line. Short positions command a strong majority (62%), indicative of strong trader bias towards EUR/USD breaking out and moving to lower levels.

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.