EUR/USD – Euro Inches Lower, US Markets Off for Fourth of July

The euro is showing limited movement on Monday, as EUR/USD trades at the 1.11 line. On the release front, there are no major releases out of the Eurozone. Spanish Unemployment Change impressed with a drop of 124.3 thousand, beating expectations. Sentix Investor Confidence dropped to 1.7 points, well short of expectations. With the US celebrating Independence Day, US markets are closed and there are no US events.

With the financial markets understandably focused on the stunning Brexit vote, the Federal Reserve’s monetary policy has shifted to the back-burner. That could change later this week, with the release of the Federal Reserve minutes. Will the minutes provide any clues about a rate hike? Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any hikes until 2017. Gone are the heady days of last December, when the Fed raised rates and talked about a series of rate hikes in 2016. Meanwhile, June has come and gone, and the Fed hasn’t made a move so far this year. Bottom line? Traders shouldn’t count on an imminent rate hike to boost the US dollar; rather, the direction of the currency will largely be data-dependent – the Fed is unlikely to seriously consider any rate hikes unless we see significantly improved employment and inflation numbers.

The Brexit vote to leave the European Union continues to cause deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. Although the financial markets have stabilized, the British pound has shed about 11 percent since the vote, and continued to drop last week. British politicians have sought to calm the public and the markets, but the pound’s sharp drop on Thursday underscores that the situation is anything but normal. The country’s political picture is fluid, as the Conservatives are choosing a new leader, the Labor Party is in turmoil and elections may not be far away. 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 UK may have voted “Out”, but there is no timetable as to when the exit will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU Britain finds itself in limbo (“neither in nor out”), and such uncertainty is likely to weigh on the euro until some decisions are reached regarding Britain’s exit from the EU.

EUR/USD Fundamentals

Monday (July 4)

• 7:00 Spanish Unemployment Change. Estimate -99.3K. Actual -124.3K
• 8:30 Eurozone Sentix Investor Confidence. Estimate 8.1. Actual 8.1
• 9:00 Eurozone PPI. Estimate 0.3%

* Key releases are in bold

*All release times are GMT

EUR/USD for Monday, July 4, 2016

EUR/USD July 4 at 8:35 GMT

Open: 1.1127 Low: 1.1117 High: 1.1101 Close: 1.1104

EUR/USD Technical

• EUR/USD has showed limited movement in the Asian and European sessions
• 1.1054 is providing support
• There is resistance at 1.1150

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 Monday, consistent with the lack of movement from EUR/USD. Short positions have a majority (63%), 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.