EUR/USD – Euro Edges Higher, US Consumer Confidence and Housing Reports Next

The euro continues to have a quiet week, as EUR/USD is trading slightly above the 1.10 line in the Tuesday session. On the economic front, there are no major Eurozone releases. In the US, we’ll get a look at consumer confidence and housing numbers. CB Consumer Confidence is expected to drop to 95.6 points, while New Home Sales is expected to improve to 560 thousand. On Wednesday, the US releases durable goods orders and the FOMC policy statement.

German Ifo Business Climate dipped in July, dropping from 108.7 points to 108.3 points. On the bright side, the reading beat the forecast of 107.7 points. This report marked the first release after the Brexit vote, and points to softer business confidence in Germany, the Eurozone’s largest economy. This release could be an indication of things to come, as Brexit is expected to take a toll (at least in the short term) on the economies of Britain and the remaining Eurozone members. With the new British government in place, negotiations between Britain and the EU over the British exit from the club will soon commence. It doesn’t appear that the process will be a quick one, as the British government has said that it does not plan to invoke the exit mechanism (Article 50 of the Lisbon Treaty) before the end of 2016.

With major central banks in the spotlight, it’s the turn of the Federal Reserve on Wednesday. The Fed meets for a policy meeting on July 27 but is unlikely to announce a rate hike at that time. However, with the US posting some solid numbers in the past few weeks, speculation has risen that the bank could raise rates before the end of the year. Another rate hike will be data-dependent, so if key indicators beat expectations, the likelihood of a rate hike will continue to increase. The fly in the ointment is inflation, which remains stuck at low levels, well short of the Fed’s target of around 2 percent. Fed policymakers will be hesitant to raise rates if inflation is not projected to point upwards.

There were no surprises last week from the ECB, which followed the cue of the BoE and did not lower the benchmark rate of 0.00%. There had been some speculation that the bank might extend its QE program of €80 billion/mth beyond March 2017, but ECB head Mario Draghi did not tinker with the asset-purchase program. Draghi claimed that the QE scheme had been “quite successful”, an assertion that many market players will likely dismiss as positive spin, given current inflation levels are nowhere near the ECB’s stated target of around 2 percent. Draghi trotted out his usual message that the bank stood ready to act “using all the instruments available within its mandate”. The situation has become further complicated with the recent Brexit vote, as Britain, the second largest economy in Europe, will soon commence negotiations with the European Union over Britain’s exit from the club. Recent data in both the UK and Europe point to weaker consumer indicators, and upcoming numbers will allow the markets to begin to gauge the effect of Brexit on the Eurozone and British economies.

EUR/USD Fundamentals

Tuesday (July 26)

• 13:00 Belgian NBB Business Climate. Estimate -0.6
• 13:00 US S&P/CS Composite-20 HPI. Estimate 5.6%
• 13:45 US Flash Services PMI. Estimate 51.2
• 14:00 US CB Consumer Confidence. Estimate 95.6
• 14:00 US New Home Sales. Estimate 560K
• 14:00 US Richmond Manufacturing Index. Estimate -4

Upcoming Key Events

Wednesday (July 27)

• 12:30 US Core Durable Goods Orders. Estimate 0.3%
• 18:00 US FOMC Statement
• 18:00 US Federal Funds Rate. Estimate <0.50%

* Key releases are in bold

*All release times are GMT

EUR/USD for Tuesday, July 26, 2016

EUR/USD July 26 at 8:30 GMT

Open: 1.0989 High: 1.1030 Low: 1.0982 Close: 1.1020

EUR/USD Technical

• EUR/USD posted small gains in the Asian session and is flat in European trade
• There is weak resistance at 1.1054. This line could be tested during the Tuesday session
•  1.0925 is providing strong support

Further levels in both directions:

• Below: 1.0925, 1.0821 and 1.0708
• Above: 1.1054, 1.1150, 1.1278 and 1.1376
• Current range: 1.0925 to 1.1054

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little change, consistent with the lack of movement from EUR/USD. Short positions have a small majority (52%), indicative of slight trader bias towards EUR/USD breaking out and moving downwards.

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.