EUR/USD – Euro Hits 5-Week High After Fed Hike

EUR/USD has paused on Thursday, following strong gains in the Wednesday session. Currently, the pair is trading slightly above the 1.07 line. On the release front, the Eurozone releases Final CPI, with the index expected to improve to 2.0%. It’s a busy day in the US, with the release of three key indicators – Building Permits, Philly Fed Manufacturing Index and unemployment claims. The week wraps up with consumer confidence data, with the release of UoM Consumer Confidence on Friday.

There were no surprised faces when the Federal Reserve raised rates by a quarter-point on Wednesday. The hike, the second in just three months, raised the benchmark lending rate to a 0.75%-1% range. What was not expected, however, was the sharp drop of the dollar against its major rivals, including the euro. The markets were hoping that a red-hot US economy would propel the Fed to accelerate its pace of monetary tightening. There was disappointment as Fed Chair Janet Yellen reiterated that further rate hikes would be done gradually, pushing the dollar on Wednesday.

The eurozone continues to post improved inflation and growth data, and this has led to calls in some quarters for the ECB to tighten monetary policy. The ECB has kept the benchmark rate at a flat 0.0%, and its asset-purchase program does not expire until December. Will ECB President Mario Draghi taper the monthly purchases or at least signal such an intent? Draghi is doing his best to perform a complicated balancing act. A stronger economy would favor tighter policy, but he does not want ECB to become entangled in heated political contests in Europe. Dutch voters went to the polls on Wednesday, and France and Germany will hold elections in April and September, respectively.

European governments can breathe a sigh of relief following the results of the election in the Netherlands. The centre-right coalition of Prime Minister Mark Rutte won the most votes, handily defeating the anti-EU Freedom Party, headed by Geert Wilders. The election was closely watched across Europe, as it was viewed as a bellwether of populist sentiment on the continent. Leaders in France and Germany, who are also facing tight races due to rising anti-EU sentiment, are hopeful that they can copy Rutte’s recipe for electoral success. The election results have helped push the euro to its highest level February 5.

EUR/USD Fundamentals

Thursday (March 16)

  • 6:00 Eurozone Final CPI. Estimate 2.0%
  • 6:00 Eurozone Final Core CPI. Estimate 0.9%
  • Tentative – Spanish 10-y Bond Auction
  • 8:30 US Building Permits. Estimate 1.26M
  • 8:30 US Philly Fed Manufacturing Index. Estimate 30.2
  • 8:30 US Unemployment Claims. Estimate 245K
  • 8:30 US Housing Starts. Estimate 1.26M
  • 10:00 US JOLTS Openings. Estimate 5.45M
  • 10:30 US Natural Gas Storage. Estimate -60B

Friday (March 17)

  • 10:00 US Preliminary UoM Consumer Sentiment. Estimate 97.1

*All release times are EST

*Key events are in bold

EUR/USD for Thursday, March 16, 2017

EUR/USD March 16 at 5:30 EST

Open: 1.0737 High: 1.0748 Low: 1.0705 Close: 1.0716

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0506 1.0616 1.0708 1.0873 1.0985 1.1097

EUR/USD has inched lower in the Asian and European sessions

  • 1.0708 has switched to a support role following sharp gains by EUR/USD in the Wednesday session
  • 1.0873 is the next resistance line

Further levels in both directions:

  • Below: 1.0708, 1.0616 and 1.0506
  • Above: 1.0873, 1.0985 and 1.1097
  • Current range: 1.0708 to 1.0873

OANDA’s Open Positions Ratio

EUR/USD has posted gains in short positions, following sharp gains by EUR/USD on Wednesday. Currently, short positions have a majority (57%), indicative of trader bias towards EUR/USD continuing to lose gr0und.

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.