EUR/USD – Euro Unchanged as Eurozone Inflation Meets Expectations

The euro is unchanged on Thursday, following gains in the Tuesday and Wednesday sessions. EUR/USD is trading at 1.1130. The markets will have plenty of indicators to digest on Thursday. German Retail Sales climbed 0.9%, beating the estimate. Eurozone CPI came in at 0.1%, edging above the forecast of 0.0%. Later in the day, the ECB will release the minutes of its most recent policy meeting. Over in the US, Unemployment Claims, today’s highlight, is expected to rise to 267 thousand. On Friday, the US releases the ISM Manufacturing PMI.

With all the excitement over Brexit, the Federal Reserve has been on the back-burner. That could change next week, as we’ll hear from Fed Chair Janet Yellen on Monday, who will speak in Philadelphia. Will she provide some clues about a rate move? Yellen and her colleagues have sounded cautious about the US economy, and unless we see stronger employment and inflation numbers in the second half of 2016, the Fed may stand pat until 2017. Gone are the heady days of last December, when the Fed hiked rates and hinted that there was more to come in 2016, perhaps as many as four hikes. Bottom line? Traders shouldn’t count on a rate hike to boost the US dollar; rather the direction of the currency will largely be data-dependent – stronger US numbers should translate into gains for the greenback against its rivals.

Brexit has ushered in a period of instability and uncertainty across the continent, with Brexit seemingly the only certainty one can point to. The vote to leave the EU is causing deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. As the dust has begun to settle, the financial markets have stabilized. The pound plunged as much as 11 percent in the aftermath of the vote but has stabilized in the past few days. Still, political leaders on both sides of the Channel will have to pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without Britain. The Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Charney have sought to reassure the markets and the public that the situation is under control, but is it? The political picture is fluid, as the Conservatives are looking for a new leader, the Labor Party is in turmoil and general elections are likely later in the year. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders can expect further volatility in the currency markets.

British Prime Minister Cameron, a staunch supporter of the EU, finds himself in the unenviable position of explaining the Brexit decision to fuming Europeans. Cameron arrived in Brussels for an EU Summit on Tuesday and the meeting was fraught with tension, dismay and anger. Clearly, the “divorce of the “century” between Britain and the EU could be rancorous and messy. Cameron has asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible, in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande went on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt.  In a strictly legal sense, Britain is still a member of the EU club, but politically, it is out (British EU Commissioner Jonathan Hill resigned shortly after the Brexit vote). The markets are allergic to uncertainty, so Britain’s unclear status within the EU will likely continue to weigh on the pound and the euro.

EUR/USD Fundamentals

Thursday (June 30)

• 6:00 German Retail Sales. Estimate 0.7%. Actual 0.9%
• 6:45 French Consumer Spending. Estimate -0.1%. Actual -0.7%
• 6:45 French Preliminary CPI. Estimate 0.2%. Actual 0.2%
• 7:55 German Unemployment Change. Estimate -5K. Actual -6K
• 9:00 Eurozone CPI Flash Estimate. Estimate 0.0%. Actual 0.1%
• 9:00 Eurozone Core CPI Flash Estimate. Estimate 0.8%. Actual 0.9%
• 9:00 Italian Preliminary CPI. Estimate 0.2%. Actual 0.1%
• Tentative – Italian 10-year Bond Auction
• 11:30 ECB Monetary Policy Meeting Accounts
• 12:30 US Unemployment Claims. Estimate 267K
• 13:45 US Chicago PMI. Estimate 50.6
• 14:30 US Natural Gas Storage. Estimate 48B
• 17:30 US FOMC James Bullard Speaks

Upcoming Key Events

Friday (July 1)

• 14:00 US ISM Manufacturing PMI. Estimate 51.3

* Key releases are in bold

*All release times are GMT

EUR/USD for Thursday, June 30, 2016

EUR/USD June 30 at 10:00 GMT

Open: 1.1122 Low: 1.1084 High: 1.1138 Close: 1.1133

EUR/USD Technical

• EUR/USD posted losses in the Asian session but has recovered in European trade
• 1.1054 is providing support
• 1.1150 is a weak resistance line

Further levels in both directions:

• Below: 1.1054, 1.0925, 1.0821 and 1.0713
• Above: 1.1150, 1.1278 and 1.1376
• Current range: 1.1054 to 1.1150

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Thursday, 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 lower.

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.