EUR/USD – Euro Listless at 1.12, Fed Members Favor Rate Hikes

EUR/USD is almost unchanged in Tuesday trading, continuing the lack of movement which has characterized the pair since last week. The pair continues to hug the 1.12 line. On the release front, German GDP posted a gain of 0.7%, matching the forecast. Germany releases ZEW Economic Sentiment, with the indicator expected to improve to 12.1 points. Eurozone ZEW Economic Sentiment is also expected to climb, with the forecast at 23.4 points. In the US, today’s key event is New Home Sales. The markets are expecting the indicator to improve in the April report, with the estimate standing at 521 thousand. On Wednesday, Germany releases Ifo Business Climate.

The euro continues to drift close to the 1.12 line. We could see some stronger movement in the Tuesday session, with the release of ZEW Economic Sentiment reports out of Germany and the Eurozone. Both indicators have been gaining strength and are expected to continue the upward trend in the April reports. German indicators have started the week on the right foot, as Final GDP for the first quarter recorded a respectable gain of 0.7%. This figure was unchanged from German Preliminary GDP, which also posted a 0.7% gain. With the ECB holding a policy meeting on June 2, German releases will play a key role in the ECB’s decision-making process. Stronger German data would point to an improving Eurozone economy and reduce pressure on the ECB to take action such as cutting interest rates into negative territory.

The Federal Reserve’s minutes were hawkish in tone, and this led to strong volatility in the currency markets last week. It has also renewed market speculation about a June rate hike. The Fed is unlikely to make a move if key indicators don’t show improvement, particularly inflation indicators. On Monday, FOMC members James Bullard and John Williams voiced support for further rate hikes. Bullard said that the Fed planned to resume rate hikes if the US economy strengthened, while Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between what Fed members are saying and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

EUR/USD Fundamentals

Tuesday (May 24)

  • 6:00 German Final GDP. Estimate 0.7%. Actual 0.7%
  • 9:00 German  ZEW Economic Sentiment. Estimate 12.1
  • 7:30 Eurozone ZEW Economic Sentiment. Estimate 23.4
  • All Day – Eurogroup Meetings
  • 12:00 ECB Financial Stability Review
  • 14:00 US New Home Sales. Estimate 521K
  • 14:00 US Richmond Manufacturing Index. Estimate 9 points

Upcoming Key Events

Wednesday (May 25)

  • 8:00 German Ifo Business Climate. Estimate 106.9

*All release times are GMT

EUR/USD for Tuesday, May 24, 2016

EUR/USD May 24 at 7:40 GMT

Open: 1.1219 Low: 1.1188 High: 1.1243 Close: 1.1192

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0909 1.1054 1.1172 1.1278 1.1378 1.1495
  • EUR/USD is showing limited movement in the Asian and European sessions
  • 1.1172 is a weak support line and could break during the Tuesday session
  • There is resistance at 1.1278

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 unchanged on Tuesday, consistent with the lack of movement from EUR/USD. Short positions command a majority (55%). 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.