The euro is trading quietly on Tuesday, as the pair trades in the mid-1.33 range in the European session. Taking a look at today’s fundamental events, there was more bad news out of the Eurozone, as Current Balance dropped sharply in July. In the US, we’ll get a look at key inflation indicators, with the release of Core CPI and CPI. As well, Building Permits and Housing Starts are also on today’s schedule.
With the US continuing to post low inflation levels, markets expectations have been low for key inflation indicators. CPI is expected to post a 0.1%, while the estimate for Core CPI stands at 0.2%. On Friday, PPI, the primary gauge of inflation in the manufacturing sector, slipped to 0.1%, down from 0.4% in July. This matched the estimate. Weak inflation is one reason why the Federal Reserve is in no rush to raise interest rates, as low inflation points to slack in the economy.
On the employment front, last week’s Unemployment Claims came in higher than expected. The indicator climbed to 311 thousand, marking a six-week high. The estimate stood at 307 thousand. Employment indicators are being closely scrutinized by analysts, as the strength of the labor market is one of the most important factors influencing the Federal Reserve regarding the timing of an interest rate hike. A rate increase is expected by mid-2015, but stronger economic data, especially on the employment front, could hasten a move by the Fed. Meanwhile, consumer confidence and retail sales disappointed last week. This means that an improvement in the US labor market has not translated into stronger consumer confidence and spending, which are critical for economic growth.
Financial leaders and central bankers from around the world will gather in Jackson Hole, Wyoming for a conference which starts on Friday. This will be Janet Yellen’s first appearance as Fed chair at the conference, and will undoubtedly be the star of the show. Yellen is expected to discuss the employment market rather than monetary policy, but the markets will be listening closely for any hints as to an interest rate hike.
Despite broad interest rate cuts by the ECB in June, the Eurozone continues to limp along, including Germany, the region’s locomotive. Inflation and growth levels remain weak, as underscored by last week’s GBP and inflation releases. French Preliminary GDP remained flat at 0.0%, unchanged from a month earlier. German Preliminary GDP slipped to -0.2%, the first contraction in the German economy since Q4 of 2012. Eurozone Flash GDP also weakened to -0.2%, down from 0.0% in the previous release. All three GDP releases missed their estimates, and the weak numbers could push the euro even lower. On the inflation front, the news is not good, as deflation is a growing concern. Last week, Eurozone Final CPI dipped to 0.4%, down from 0.5% a month earlier. As well, German and French inflation numbers remained weak.
With the Eurozone economy sputtering, it shouldn’t come as a surprise that last week’s confidence indicators pointed sharply downwards. German ZEW Economic Sentiment, a key release, took a tumble in July, falling to just 8.6 points, down from 27.1 points a month earlier. This was its lowest level since November 2012. Weakening confidence in the economy could lead to decreased spending and hiring and weigh on economic growth.
EUR/USD for Tuesday, August 19, 2014
EUR/USD August 19 at 9:25 GMT
EUR/USD 1.3350 H: 1.3360 L: 1.3343
- EUR/USD has shown little activity in the Asian and European sessions.
- 1.3346 is under strong pressure and could break during the day. 1.3295 is next.
- 1.3487 remains a strong resistance line.
- Current range: 1.3346 to 1.3487
Further levels in both directions:
- Below: 1.3346, 1.3295, 1.3175 and 1.3104
- Above: 1.3487, 1.3585, 1.3651 and 1.3793
OANDA’s Open Positions Ratio
EUR/USD ratio is pointing to gains in long positions in Tuesday trade, reversing the direction seen a day earlier. This not consistent with the movement of the pair, as the euro has posted small losses. The ratio has a majority of long positions, indicative of trader bias towards the euro moving to higher ground.
- 8:00 Eurozone Current Account. Estimate 19.3B. Actual 13.1B.
- 12:30 US Building Permits. Estimate 1.00M.
- 12:30 US CPI. Estimate 0.1%.
- 12:30 US Core CPI. Estimate 0.2%.
- 12:30 US Housing Starts. Estimate 0.97M.
*Key releases are highlighted in bold
*All release times are GMT