EUR/USD – Euro Sinks as Fed Revives June Hike Scenario

EUR/USD is unchanged on Thursday, following sharp losses in the Wednesday session. The pair is trading at 1.1210 in the European session. On the release front, the ECB will release the minutes of its April policy meeting. In the US, there are two key releases. Philly Fed Manufacturing Index is expected to climb 3.2 points, while the forecast for Unemployment Claims is 276 thousand.

The Federal Reserve minutes hinted that a June hike remains on the table, and EUR/USD responded with sharp losses of about 100 points. According to the minutes, the Fed wants to see stronger growth in Q2 as well as better numbers from the inflation and employment fronts. If this is achieved, the Fed said it “likely would be appropriate” to raise rates at the June meeting. This message is somewhat hawkish, as statements from Fed chair Janet Yellen were more cautious in nature, dampening speculation about a June hike. The markets were skeptical that June would be a “live meeting”, but there are no more doubters that the June meeting will be crucial, as it could mark the Fed’s first interest rate hike this year. With the Fed saying that a key factor in a rate hike decision will be the strength of the US economy, key economic indicators will be under the market microscope.

It’s the ECB’s turn to release policy meeting minutes on Thursday. The markets will get a look at the details of the April meeting, in which the ECB held the course and kept the benchmark rate at zero. At that time, ECB president Mario Draghi said that he expected interest rates to remain at current levels or lower for an extended period, warning that he would take action to combat the threat of deflation. Although there has been some improvement in growth in the Eurozone, inflation levels remain very low, as underscored by Eurozone Final CPI, which was released on Wednesday. The April report dipped to -0.2%, marking its second decline in three months. Core CPI was stronger at 0.7%, but this was lower than the previous reading of 1.0%. With the threat of deflation posing a major headache for the ECB, Mario Draghi and Co. are under strong pressure to take action and bolster inflation. However, it’s questionable if the ECB has any monetary ammunition left, as interest rates are at zero and the QE program was expanded earlier this year. Further easing would weaken the euro, so the fact that the ECB has remained on the sidelines has helped the euro trade at high levels.

EUR/USD Fundamentals

Thursday (May 19)

  • 11:30 ECB Monetary Policy Meeting Accounts
  • 12:30 US Philly Fed Manufacturing Index. Estimate 3.2
  • 12:30 US Unemployment Claims. Estimate 276K
  • 13:15 US FOMC Member Stanley Fischer Speaks
  • 14:00 US CB Leading Index. Estimate 0.4%
  • 14:30 US Natural Gas Storage. Estimate 75B

Upcoming Key Events

Friday (May 20)

14:00 US Existing Home Sales. Estimate 5.40M

*Key events are in bold

*All release times are GMT

EUR/USD for Thursday, May 19, 2016

EUR/USD May 19 at 9:25 GMT

Open: 1.1219 Low: 1.1205 High: 1.1230 Close: 1.1215

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0909 1.1054 1.1172 1.1278 1.1378 1.1495
  • EUR/USD has been flat in the Asian and European sessions.
  • 1.1172 is providing support
  • 1.1278 switched to a resistance role following sharp losses by EUR/USD in the Wednesday session

Further levels in both directions:

  • Below: 1.1172, 11054 and 1.0909
  • Above: 1.1278, 1.1378, 1.1495 and 1.1609
  • Current range: 1.1172 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little change on Thursday, consistent with the lack of movement from EUR/USD. Short positions command a strong majority (56%). This is indicative of strong trader bias towards EUR/USD breaking out and dropping 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.

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.