EUR Steady at 1.13 as German GDP Within Expectations

The euro has ticked lower on Wednesday, as EUR/USD trades slightly below the 1.13 line. On the release front, German Final GDP dropped to 0.4%, edging above the forecast of 0.3%. In the US, today’s highlight is Existing Home Sales, with the indicator expected to dip to 5.52 million. On Thursday, Germany releases Ifo Business Climate. Over in the US, we’ll get a look at the Core Durable Goods report and Unemployment Claims. As well, the 3-day Jackson Hole economic conference will begin on Thursday.

The German economy expanded in the second quarter, but failed to keep up with the first quarter’s pace. Final GDP climbed 0.4%, within expectations but well behind the first quarter gain of 0.7%. Domestic consumption continues to power the economy, with low inflation and zero interest rates helping to spur consumer spending. On Tuesday, there were no surprises from August Eurozone PMI reports, most of which were very close to the estimates. German and Eurozone Manufacturing PMIs both pointed to expansion in the manufacturing sector. As well, both indicators were showed little changed from the July readings, which indicates that manufacturers continue to be optimistic after the Brexit referendum vote. There had been widespread fears that the UK’s shock decision to leave the European Union would send the British and Eurozone economies into a tailspin, but these fears have not borne out by July and August data, which has generally been positive.

US numbers were a mixed bag on Tuesday. The Richmond Manufacturing Index dropped sharply, dropping 11 points. The markets had expected a strong gain of plus -6. There was much better news from the housing sector, as New Home Sales jumped to 654 thousand, marking a 12.4  percent increase. This was the highest number of new home sales since 2008, pointing to strong consumer demand. Will Existing Home Sales follow suit with a strong release?

Ahead of the Jackson Hole conference, which will bring together central bankers and other senior policymakers, investors are sticking to the safety of the sidelines, unwilling to make any major moves. This has resulted in a notable lack of movement in the currency markets so far this week. The markets will be looking for hints from Federal Reserve chair Janet Yellen regarding the Fed’s monetary plans, particularly the timing of a rate hike. We could hear from FOMC members ahead of the crucial meeting. Fed Vice Chairman Stanley Fischer took the opportunity early in the week and sounded upbeat about the US economy, saying that the Fed was close to its aims of a full labor market and the inflation target of 2 percent. The latter claim sounds a bit optimistic, as US inflation levels have consistently been closer to zero than the 2 percent level. The US dollar gained some ground briefly after Fischer’s comments. Janet Yellen will likely address the inflation issue at Jackson Hole, as inflation levels will be a crucial factor in whether the Fed pulls the rate trigger before 2017. The odds of a September hike are only about 12%, while the likelihood of a December move is around 40%.

EUR/USD Fundamentals

Wednesday (August 24)

• 6:00 German Final GDP. Estimate 0.3%. Actual 0.4%
• 13:00 Belgian NBB Business Climate. Estimate 1.1
• 13:00 US HPI. Estimate 0.3%
• 14:00 US Existing Home Sales. Estimate 5.52M
• 14:30 US Crude Oil Inventories. Estimate -0.5M

Thursday (August 25)

• 8:00 German Ifo Business Climate. Estimate 108.5
• 12:30 US Unemployment Claims. Estimate 265K
• 12:3 US Core Durable Goods Orders. Estimate 0.4%
• All Day – Jackson Hole Symposium

*All release times are EDT

* Key events are in bold

EUR/USD for Wednesday, August 24, 2016

EUR/USD August 24 at 7:15 GMT

Open: 1.1302 High: 1.1311 Low: 1.1287 Close: 1.1292

EUR/USD Technical

• EUR/USD has shown little movement in the Asian and European sessions
•  1.1278 is a weak support line. It could be tested in the Wednesday session
•  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 showing little movement on Wednesday, consistent with the lack of movement from EUR/USD. Currently, short positions have a strong majority (66%), 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.