EUR/USD – Euro Remains Subdued as Markets Eye Fed Rate Announcement

EUR/USD has edged higher in the Tuesday session, as the pair slightly below the 1.12 line. On the release front, there are only three events on the schedule, so it could be another uneventful day for the euro. German PPI declined 0.1%, short of the forecast of +0.1%. The US will release Building Permits and Housing Starts, with the markets expecting little change in the August reports. On Wednesday, the Federal Reserve will release its monetary policy statement.

The euro has moved higher this week, reversing directions after sharp losses on Friday. The catalyst for the 100-point drop was US consumer inflation numbers, which were better than expected. CPI posted a gain of 0.2%, edging above the forecast of 0.1%. It was a similar story with Core CPI, which rose 0.3%, compared to the forecast of 0.2%. CPI was up from 0.0% in July, with the rise being attributed to higher shelter and health care costs. If inflation indicators continue to rise, there is a greater chance of a rate hike in December, and increased speculation about a Fed hike could push the greenback to higher levels. The Federal Reserve will hold a policy meeting on September 21, and a rate hike is considered extremely unlikely, with a hike pegged at just 12 percent.

Janet Yellen delivered an upbeat speech back in August, and the predictable result was increased speculation about a rate hike as early as September. However, recent economic numbers have been mixed, so the Fed is widely expected to remain on the sidelines this week and revisit monetary policy in December. Still, the Fed policy statement will be closely monitored by the markets, which will be looking for hints regarding a December move. If Janet Yellen delivers a dovish message, the market’s mood could sour and the dollar could lose ground. Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains divided regarding its near-future monetary policy. With the markets expecting a rate hike in the near future, greater clarity from the Fed could contribute to market stability.

Eurozone inflation levels remained weak in August. Final CPI remained unchanged at 0.2%, unchanged from a month earlier. The indicator has not risen above 0.3% in 2016, pointing to persistent low inflation levels on the continent. Germany, the largest economy in the Eurozone is also struggling with weak inflation. German Final CPI dropped to 0.0% in August, down from 0.3% a month earlier. On Monday, German PPI declined 0.1%, its first decline in six months. The ECB has been reluctant to adopt further monetary easing, but may have to consider hinting at further action in order to restore market confidence in a Eurozone economy which is beset by weak growth and low inflation.

EUR/USD Fundamentals

Tuesday (September 20)

  • 6:00 German PPI. Estimate +0.1%. Actual -0.1%
  • 12:30 US Building Permits. Estimate 1.17M
  • 12:30 US Housing Starts. Estimate 1.19M

Wednesday (September 21)

  • 18:00 FOMC Economic Projections
  • 18:00 FOMC Federal Funds Rate. Estimate <0.50%
  • 18:30 FOMC Press Conference

*All release times are EDT

* Key events are in bold

EUR/USD for Tuesday, September 20, 2016

EUR/USD September 20 at 8:55 GMT

Open: 1.1176 High: 1.1213 Low: 1.1168 Close: 1.1185

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0957 1.1054 1.1150 1.1278 1.1376 1.1467
  • EUR/USD was flat in the Asian session. The pair has posted small gains in European trade
  • 1.1278 is a strong resistance line
  • 1.1150 remains a weak support level

Further levels in both directions:

  • Below: 1.1150, 1.1054, 1.0957 and 1.0821
  • Above: 1.1278, 1.1376 and 1.1467
  • Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio has shown slight movement towards short positions. Currently, short positions have a small majority (53%), indicative of trader bias towards EUR/USD reversing directions 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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.