EUR/USD – Slumping Euro Drops to 14-Year Low, Euro CPI Next

The euro has steadied on Friday, following two straight losing sessions. Currently, EUR/USD is trading at 1.0440. On the release front, it’s a quiet schedule to wrap up the trading week. The Eurozone releases Final CPI, with the markets expecting inflation to edge higher to 0.6%. In the US, today’s highlight is Building Permits. The indicator is projected to come in at 1.24 million. There were a host of releases out of the US on Thursday. CPI and Core CPI both came in at 0.2%, also matching the estimates. Other key events looked sharp, as unemployment claims dipped to 254 thousand, while the Philly Fed Manufacturing Index surged to 21.5 points, well above expectations.

There was absolutely no surprise when the Federal Reserve raised rates by a quarter point, as the move was widely expected and priced in by the markets at close to 100%. Still, the sheer magnitude of the move triggered a sharp rise by the dollar against most major currencies. The euro slipped as much as 2.4% in the aftermath of the rate hike, slipping below the 1.04 line on Thursday. The euro hasn’t dropped to these levels since January 2003. If the decline continues, we’re likely to hear growing talk about parity between the US dollar and the euro.

The Fed should get full marks for getting out the message loud and clear that it would raise rates at the December meeting. This marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year“. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimates. What’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the markets haven’t forgotten that after the hike in December 2015, the Fed said it expected to raise rates four times in 2015, but ended up raising rates only once. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. If Trump’s economic policies heat up the economy and boost inflation, we could see a number of rate hikes in 2017.

The Eurozone economy has shown improvement in the third quarter, as inflation and growth numbers have moved higher. Confidence levels among investors and analysts remain strong, as underscored by ZEW Economic Sentiment reports in December. The German indicator remained at 13.8 points, although this was short of the forecast of 14.2. The Eurozone report jumped to 18.1, beating the estimate of 16.5. These figures point to optimism over growth aspects in the Eurozone and in Germany, the bloc’s number one economy.

EUR/USD Breaks 1.0500 as Fed Connects the Dots

EURUSD Falls to 14 Year Low

EUR/USD Fundamentals

Friday (December 16)

  • 9:00 Italian Trade Balance. Estimate 4.21B. Actual 4.30B
  • 10:00 Eurozone Final CPI. Estimate 0.6% 
  • 10:00 Eurozone Final Core CPI. Estimate 0.8%
  • 10:00 Eurozone Trade Balance. Estimate 25.2B
  • 13:30 US Building Permits. Estimate 1.24M
  • 13:30 US Housing Starts. Estimate 1.23M

*All release times are GMT

* Key events are in bold

EUR/USD for Friday, December 16, 2016

EUR/USD December 16 at 9:40 GMT

Open: 1.0416 High: 1.0455 Low: 1.0405 Close: 1.0437

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0170 1.0287 1.0414 1.0506 1.0616 1.0708
  • EUR/USD has shown limited movement in the Asian and European sessions
  • 1.0414 is a weak support level
  • 1.0506 is the next resistance line

Further levels in both directions:

  • Below: 1.0414, 1.0287 and 1.0170
  • Above: 1.0506, 1.0616 and 1.0708
  • Current range: 1.0414 to 1.0506

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Friday session. Currently, long positions have a majority (60%), indicative of trader bias towards EUR/USD continuing to move upwards.

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.