EUR/USD – Euro Slips to 11-Month Low Ahead of Fed Minutes

The euro continues to point southward on Wednesday, as EUR/USD has broken below the 1.33 line. The sagging euro has lost about a cent this week, and finds itself at its lowest levels since September 2013. It’s a quiet day on the release front, highlighted by the Federal Reserve minutes. In the Eurozone, German numbers continue to slip, as PPI came in at -0.1%, shy of the estimate of 0.0%.

The US economy has been moving in the right direction, but inflation numbers in the US remain at very low levels. On Tuesday, CPI and Core CPI, the primary gauges of consumer inflation, both posted paltry gains of 0.1%.  These weak readings come on the heels of PPI, a manufacturing inflation index, which also came in at 0.1% last month. 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. Meanwhile, US housing numbers were sharp on Tuesday. Building Permits improved to 1.05 million, beating the estimate of 1.00 million. Housing Starts jumped to 1.09 million, easily beating the estimate of 0.97 million.

All eyes are on the Federal Reserve, which will release the minutes of its last policy meeting later on Wednesday. Traders are looking for clues as to when the Fed will press the trigger and raise interest rates, but may end up disappointed. US growth numbers have been positive, but job data could be better and inflation remains very low. The Fed’s asset purchase program (QE) is scheduled to wind up in October, and a rate hike appears to be a question of timing.

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.

EUR/USD for Wednesday, August 20, 2014

EUR/USD August 20 at 9:40 GMT

EUR/USD 1.3293 H: 1.3322 L: 1.3285

EUR/USD Technical

• EUR/USD edged lower late in the Asian session and the downward trend continues in European trade, as the pair has slipped below 1.33.
• 1.3175 is providing strong support.
• 1.3295 has reverted to resistance role, but is fluid. 1.3346 is next.
• Current range: 1.3175 to 1.3295

Further levels in both directions:

• Below: 1.3175, 1.3104, 1.2984 and 1.2904
• Above: 1.3295, 1.3346, 1.3487 and 1.3585

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions in Wednesday trade, continuing the direction seen a day earlier. This not consistent with the movement of the pair, as the euro continues to post losses. The ratio has a majority of long positions, indicative of trader bias towards the euro reversing its downward movement and heading to higher ground.

EUR/USD Fundamentals

• 6:00 German PPI. Estimate 0.0%. Actual -0.1%.
• 14:30 US Crude Oil Inventories. Estimate -1.3M.
• 18:00 US FOMC Meeting Minutes.

*Key releases are highlighted in bold

*All release times are GMT

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.