EUR/USD – Euro in Holding Pattern Ahead of US Nonfarm Payrolls

EUR/USD has inched higher in the Friday session. Currently, the pair is trading at 1.1880, up 0.10% on the day. On the release front, German Factory Orders climbed 1.0%, beating the estimate of 0.6%.  Eurozone Retail PMI slowed to 51.0, marking a 4-month low. In the US, the focus will be on employment data. Nonfarm Payrolls is expected to slow to 182 thousand, while wage growth is forecast to edge up to 0.3%.

German indicators continue to point to an expanding German economy. Retail Sales jumped 1.1%, its second-highest gain in 2017. Factory Orders gained 1.0%, while unemployment claims dropped 9 thousand – the indicator has declined every month in 2017, except one. Although manufacturing and services PMIs dipped in July, both are well over the 50-level, indicative of expansion. The strong German numbers have helped boost the eurozone economy. Eurozone GDP gained 0.6% in the second quarter, up from 0.5% in the previous quarter. As well, Eurozone Retail Sales gained 0.5%, marking a 4-month high.

Federal Reserve policymakers continue to talk about the possibility of a December rate hike, but with the odds for a December increase pegged at just 42%, it’s clear that the markets are skeptical about a third rate hike in 2017. Investor attention has shifted to the Fed’s balance sheet, which stands at $4.2 trillion. Fed policymakers have broadly hinted at reducing purchases of bonds and securities starting in September, but San Francisco Fed President John Williams was more forthcoming about the Fed’s plans this week, in a clear message that was likely aimed at giving notice to the markets. In a speech on Wednesday, Williams said that the economy had “fully recovered” from the 2008 financial crisis and called on the Fed to start trimming the balance sheet “this fall”. Williams added that the process would be gradual and would take four years to reduce the balance sheet to a “reasonable size”.  On Wednesday, two other FOMC members also came out in support of starting to taper the balance sheet – St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester.

How will the Fed’s trimming of the balance sheet affect the US dollar? The Fed is widely expected to begin the process in September, by not replacing maturing bonds, which will reduce the balance sheet by $200 billion in 2017, according to the Institute of International Finance (IFF). The IFF estimates that this would be equivalent to three normal interest hikes, so the greenback should head upwards once the Fed starts winding down its bloated balance sheet.

 

EUR/USD Fundamentals

Friday (August 4)

  • 2:00 Germany Factory Orders. Estimate 0.6%. Actual 1.0%
  • 4:00 Italian Retail Sales. Estimate 0.1%. Actual 0.6%
  • 4:10 Eurozone Retail PMI. Actual 51.0
  • 8:30 US Average Hourly Earnings. Estimate 0.3%
  • 8:30 US Nonfarm Employment Change. Estimate 182K
  • 8:30 US Unemployment Rate. Estimate 4.3%
  • 8:30 US Trade Balance. Estimate -43.9B

*All release times are GMT

*Key events are in bold

 

EUR/USD for Friday, August 4, 2017

EUR/USD Friday, August 4 at 6:00 EDT

Open: 1.1869 High: 1.1890 Low: 1.1869 Close: 1.1879

 

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1616 1.1712 1.1876 1.1996 1.2108 1.2221

EUR/USD has been flat in the Asian and European sessions

  • 1.1876 has switched to a support role and remains fluid
  • 1.1996 is the next resistance line

Further levels in both directions:

  • Below: 1.1876, 1.1712, 1.1616 and 1.1534
  • Above: 1.1996, 1.2108 and 1.2221
  • Current range: 1.1876 to 1.1996

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Friday session. Currently, short positions have a majority (63%), indicative of EUR/USD reversing directions and moving downwards.

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.