EUR/USD – Euro Subdued, German Inflation Improves

EUR/USD has posted small losses on Monday, as the pair trades at 1.1340. With only one data release on the schedule, it could be quiet day for the pair. German PPI improved with a gain of 0.4%, matching the forecast. On Tuesday, the markets will be keeping an eye on the heads of central banks. ECB president Mario Draghi testifies before the European Parliament’s Economic and Monetary Affairs Committee, while Federal Reserve chair Janet Yellen will appear before the Senate Banking Committee. As well, we’ll get a look at German ZEW Economic Sentiment, a key event.

The UK will go to the polls on Thursday, as the country votes in a historic referendum on whether to remain in the EU. The campaign between the “Leave” and “Remain” camps has resumed on Monday, following the killing of a Labor MP last week, which shocked the UK and briefly suspended campaigning. Polls released on Friday showed the Remain camp with the lead, and this has boosted the pound in Monday trading. Prime Minister David Cameron and other senior government ministers have warned that that a vote to leave the EU would cause turmoil in global financial markets, and a recent Treasury report says an EU exit will wipe out 800,000 jobs in the UK and cause a recession. With the referendum’s outcome very much in doubt, traders can expect volatility from the euro during the week.

With the Fed’s June policy meeting behind us, the markets are speculating on the timing of another rate hike. In the heady days of December when the Fed raised interest rates, there was talk of up to four hikes in 2016. Fast forward to June, and the Fed hasn’t made a move so far this year. Many analysts are predicting only one hike in 2016, but on Friday, St. Louis Fed President James Bullard said that the economy may need just one hike in the next 2-1/2 years. Bullard did not mince words, bluntly stating that the Fed had done a poor job in its predictions about the US economy, and that the markets have no faith in the Fed’s “dot plot” of projected interest rate policy, as the Fed’s actual pace of rate hikes was much slower than its projections. Bullard added that this “mismatch” between words and action had caused distortions in the global financial markets and eroded credibility in the Federal Reserve.

US inflation and employment numbers were soft on Thursday. Core CPI and CPI, the primary gauges of consumer inflation, both posted small gains of 0.2%, within expectations. The Federal Reserve continues to insist that inflation will head towards its target of 2.0 percent, but given current inflation levels are not much above zero, it’s hard to see this happening, absent a huge surge by the US economy. Meanwhile, Unemployment Claims increased to 277 thousand, above the estimate of 267 thousand. This marked a four-week high, and once again raises questions about the strength of the US labor market. The employment picture appeared to be very bright in early 2016, but the Nonfarm Payrolls report of just 38 thousand in May shocked the markets and could delay a rate hike by the Federal Reserve.

EUR/USD Fundamentals

Monday (June 20)

  • 6:00 German PPI. Estimate 0.4%. Actual 0.4%
  • 10:00 German Buba Monthly Report

Upcoming Key Events

Tuesday (June 21)

  • Tentative – German Constitutional Court Ruling
  • 9:00 German ZEW Economic Sentiment. Estimate 5.1
  • 13:00 ECB President Mario Draghi Speaks
  • 14:00 Federal Reserve Chair Janet Yellen Testifies

* Key releases are in bold

*All release times are GMT

EUR/USD for Monday, June 20, 2016

EUR/USD June 20 at 9:50 GMT

Open: 1.1347 Low: 1.1328 High: 1.1382 Close: 1.1332

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1054 1.1150 1.1278 1.1376 1.1495 1.1616
  • EUR/USD posted small gains in the Asian sessions, but has retracted in European trade
  • 1.1278 is providing support
  • There is resistance at 1.1376

Further levels in both directions:

  • Below: 1.1278, 1.1150, 1.1054 and 1.0909
  • Above: 1.1376, 1.1495, 1.1616
  • Current range: 1.1278 to 1.1376

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement on Monday, consistent with the lack of movement from EUR/USD. Short positions have a majority (60%), indicative of trader bias towards EUR/USD breaking out and moving to lower ground.

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.