EUR/USD – Euro Subdued as Markets Search for Cues

The euro has recorded slight losses on Friday, as EUR/USD trades at 113.20. On the release front, it’s a very quiet end to the week, with just one release on the schedule. German PPI dropped to 0.2%, edging above the estimate of 0.1%. There are no US events on the schedule.

July inflation levels remain soft in the Eurozone, although at least the indicators have been within market expectations. German PPI, which measures wholesales prices, dipped to 0.2%, compared to 0.4% in the past two readings. Eurozone Final CPI also posted a gain of 0.2%, after a gain of 0.1% in June. This small gain marks the indicator’s strongest reading in five months, underscoring persistent weakness in inflation levels on the continent. Earlier in the week, Germany and the Eurozone released ZEW Economic Sentiment reports, but the market forecasts missed on both accounts. The German indicator posted a small gain of 0.5 points, well short of the forecast of 2.1 points. The Eurozone report was surprisingly strong, coming in at 4.6 points. This crushed the estimate of -6.3 points. The good news is that both indicators rebounded nicely in August after recording declines in July. At the same time, the current readings pale in comparison to the June readings, which hovered around the 20-point level. There are strong concerns that third quarter data, which covers the period immediately after the Brexit referendum vote in late June, will point to weaker growth in the Eurozone. This could put more pressure on the ECB to step in and adopt further easing measures in order to kick-start the economy and boost inflation.

Any market players who were hoping for some clarity from the Federal Reserves minutes release are likely even more confused on the day after. The minutes, which provided the details of the July policy meeting, indicated that FOMC members are deeply divided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%. Recent data is pointing in all directions, which explains why the Fed is divided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers. We’ll likely hear FOMC members continue to express their views ahead of the meeting of central bankers at Jackson Hole next week. The great rate debate needs to be resolved one way or another, as the Fed must set rates at its policy meeting next month. Policymakers will be fine-combing through key economic data, particularly employment and inflation numbers. The news remains bleak on the inflation front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. As of now, a September hike is virtually off the table, while the Fed could go either way in December, with the odds of a December hike pegged at 50/50.

EUR/USD Fundamentals

Friday (August 19)

• 6:00 German PPI. Estimate 0.1%. Actual 0.2%

* Key releases are in bold

*All release times are GMT

EUR/USD for Friday, August 19, 2016

EUR/USD August 19 at 8:00 GMT

Open: 1.1347 High: 1.1349 Low: 1.1321 Close: 1.1320

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted small gain in European trade
•  1.1278 is providing support
•  There is resistance at 1.1376

Further levels in both directions:

• Below: 1.1278, 1.1150 and 1.1054
• Above: 1.1376, 1.1467 and 1.1534
• Current range: 1.1278 to 1.1376

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Friday, consistent with the lack of movement from EUR/USD. Currently, short positions have a strong majority (64%), indicative of trader bias towards EUR/USD breaking out and moving 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.