The euro has started the week with slight gains, following two losing sessions. Currently, EUR/USD is trading just above the 1.06 line. On the release front, it’s a very quiet day with no major releases out of the US or the Eurozone. On Tuesday, Germany and the Eurozone will release the ZEW Economic Sentiment reports. Both indicators are expected to rise, which could give a boost to the euro.
It’s been a rough few days for the euro, which posted sharp losses after the ECB extended its quantitative easing program (QE) until December 2017. The ECB also decided to reduce asset purchases to EUR 60 billion in April. Mario Draghi made a rather dubious claim that the cut in purchases did not amount to tapering, apparently wanting to downplay the significance of the move. Some analysts wryly noted that by not calling the cut a taper, Draghi will find it easier to increase purchases if the Eurozone economy tanks. The decision to cut purchases can be supported by the fact that the Eurozone economy has shown improvement in the latter half of 2016, and inflation and growth projections for the Eurozone have been revised upwards. Still, there are rough waters ahead for the Eurozone, which must deal with the fallout of the Italian referendum and the perilous state of the Italian banking system, as well as upcoming negotiations with Britain ahead of its withdrawal from the European Union.
The Federal Reserve will be in the spotlight this week, as the Fed meets for its monthly policy meeting. This will be the first meeting after Donald Trump’s election as president. More importantly of course, the markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback. With Trump taking the reins in government in January, it will be interesting to see what happens early next year. Trump has stated that he plans to increase government spending and cut taxes, which could lead to higher inflation levels. The Fed has indicated that it plans to raise rates gradually in 2017, but this could change once the new administration’s economic policies become clearer.
Monday (December 12)
- 18:01 US 10-year Bond Auction
- 19:00 US Federal Budget Balance. Estimate -99.5B
Tuesday (December 13)
- 10:00 German ZEW Economic Sentiment. Estimate 14.2
*All release times are GMT
* Key events are in bold
EUR/USD for Monday, December 12, 2016
EUR/USD December 12 at 11:50 GMT
Open: 1.0546 High: 1.0614 Low: 1.0525 Close: 1.0611
- EUR/USD was flat in the Asian session and has posted gains in European trade
- 1.0506 is providing support
- 1.0616 is a weak resistance line
Further levels in both directions:
- Below: 1.0506, 1.0414 and 1.0287
- Above: 1.0616, 1.0708, 1.0821 and 1.0957
- Current range: 1.0506 to 1.0616
OANDA’s Open Positions Ratio
EUR/USD ratio continues to show gains in short positions. Currently, short positions have a strong majority (65%), indicative of trader bias towards EUR/USD reversing directions and moving lower.