EUR/USD – Euro Edges Lower Despite Solid Eurozone, German Service PMIs

The euro has dropped for a third straight session, as the pair has edged lower in the Wednesday session. Currently, the pair is trading at 1.1330. On the release front, German and Eurozone Services PMIs in June both beat their estimates, but were weaker than the May reports. In the US, the Federal Reserve will release the minutes of the June policy meeting. On Thursday, the ECB will release the minutes of its most recent meeting. It will be busy in the US, with the release of ADP Nonfarm Payrolls, unemployment claims, and the ISM Non-Manufacturing PMI.

Last week’s ECB forum triggered a stampede to snap up euros, as the currency jumped 2.0%, following hawkish remarks from ECB President Mario Draghi. At the meeting, Draghi sounded upbeat about the euro-area economy and played down concerns about low inflation levels. Draghi did not say that the ECB was changing its accommodative policy, but he may have learned the hard way that the markets picked up a different message than the one he delivered in his speech. The euro rally has forced ECB policymakers to reassess whether what moves, if any, it will announce at the July 20 policy meeting. In June, the ECB removed an easing bias regarding interest rates, effectively closing the door to further rate cuts. However, policymakers may now be wary about removing a second easing bias regarding the asset-purchase program, to avoid another run on the euro. The ECB has repeated loud and clear that it will not remove QE until inflation levels are closer to the bank’s target of 2.0%, but the markets chose to interpret Draghi’s comments as a signal that the bank was planning an exit from its easing stance. This could result in the ECB playing it safe and avoiding any meaningful discussion about QE at the July meeting, especially if the euro remains at high levels.

Federal Reserve policymakers have consistently said that they expect a third rate hike in 2017, but the markets are not convinced. The odds of a December rate hike are pegged at 50%, while the likelihood of an increase in September is just 18%. Consumer spending, which comprises two-thirds of US economic growth, remains soft. Another sore point in the economy is inflation, which remains below the Fed’s target of 2%. In June, Fed Chair Janet Yellen shrugged off inflation worries, saying that she expected inflation to remain soft due to temporary factors. The dollar was broadly higher after the June rate statement, as Fed policymakers were surprisingly upbeat about the economy and dismissed concerns about low inflation levels. The minutes could follow suit with a positive view of the economy, but the question remains as to whether the markets will buy in to the Fed’s optimism. If the answer is yes, then the dollar could respond with gains.

EUR/USD Fundamentals

Wednesday (July 5)

  • 3:15 Spanish Services PMI. Estimate 56.6. Actual 58.3
  • 3:45 Italian Services PMI. Estimate 54.6. Actual 53.6
  • 3:50 French Final Services PMI. Estimate 55.3. Actual 56.9
  • 3:55 German Final Services PMI. Estimate 53.7. Actual 54.0
  • 4:00 Eurozone Final Services PMI. Estimate 54.7. Actual 55.4
  • 5:00 Eurozone Retail Sales. Estimate 0.4%. Actual 0.4%
  • 10:00 US Factory Orders. Estimate -0.5%
  • 10:00 US IBD/TIPP Economic Optimism. Estimate 51.6
  • 14:00 US FOMC Meeting Minutes

Thursday (July 6)

  • 7:30 ECB Monetary Policy Meeting Accounts
  • 8:15 ADP Non-Farm Employment Change. Estimate 184K
  • 8:30 US Unemployment Claims. Estimate 243K
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 56.5

*All release times are EDT

*Key events are in bold

EUR/USD for Wednesday, July 5, 2017

EUR/USD Wednesday, July 5 at 6:45 EDT

Open: 1.1359 High: 1.1368 Low: 1.1317 Close: 1.1331

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0985 1.1122 1.1242 1.1366 1.1465 1.1534

EUR/USD inched higher in the Asian session but has reversed directions in European trade and posted losses

  • 1.1242 is providing support
  • 1.1366 is the next resistance line.

Further levels in both directions:

  • Below: 1.1242, 1.1122 and 1.0985
  • Above: 1.1366, 1.1465, 1.1534 and 1.1616
  • Current range: 1.1242 to 1.1366

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Wednesday session. Currently, short positions have a majority (69%), indicative of EUR/USD continuing to move 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.