EUR/USD – Euro in Holding Pattern Ahead of ECB Meeting

EUR/USD is unchanged on Wednesday, as the pair trades at 1.1370 early in the European session. It’s a very quiet day on the release front, with no events out of the Eurozone. The only economic release from the US is Crude Oil Inventories. As well, FOMC member Jerome Powell will speak at an event in New York. Traders should keep a close eye on Thursday’s key events – the ECB meeting and press conference, as well as US Unemployment Claims.

With the Eurozone struggling with little growth and a lack of inflation, the ECB is under growing pressure to take action and kick-start the ailing economy. The central bank would love to lower rates, but there isn’t much room for such a step, as current rates stand at record low levels of 0.05%. This means that the ECB would have to expand the current QE program of EUR 60 billion/mth. The ECB has bought almost half a trillion euros of debt under QE, but the bloc’s economy hasn’t responded. Analysts expect an additional move before the end of the year, but traders should not discount the possibility of further stimulus at the ECB policy meeting on Thursday. If the ECB announces further stimulus measures on Thursday, we can expect the euro to lose ground against the dollar. The ECB could also reduce the direct deposit rate, which stands at -0.2%, but this does not appear likely.

The week did not start well for the Eurozone. German PPI, which measures inflation in the manufacturing sector, is struggling, having posted three declines in the past four months. The reading of -0.4% in September fell short of the estimate of -0.1%, pointing to deflation in the Eurozone’s largest economy. There was further bad news as the Eurozone trade surplus narrowed to EUR 17.7 billion in August, short of the estimate of EUR 20.1 billion. This marked the bloc’s smallest surplus in 14 months.

US numbers have been mixed recently, which has reduced the likelihood of a rate hike by the Federal Reserve before the end of 2016. The Fed hasn’t cleared the air, as FOMC members continue to send out contradictory messages about the Fed’s plans. Still, an improvement in US numbers, especially employment and consumer indicators, could quickly revive speculation about a rate hike and boost the US dollar. This means that the upcoming US Unemployment Claims report will be carefully monitored, and an unexpected reading could have a sharp impact on the direction of EUR/USD. The estimate stands at 266 thousand, higher than the previous report of 255 thousand.

EUR/USD Fundamentals

Wednesday (Oct. 21)

• 14:30 US Crude Oil Inventories. Estimate 3.5M
• 17:30 FOMC Member Jerome Powell Speaks

Upcoming Events

Thursday (Oct. 22)

• 11:45 ECB Minimum Bid Rate. Estimate 0.05%.
• 12:30 ECB Press Conference
• 12:30 US Unemployment Claims. Estimate 266K.

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Wednesday, October 21, 2015

EUR/USD October 21 at 7:50 GMT

EUR/USD 1.1370 H: 1.1373 L: 1.1343

EUR/USD Technical

• EUR/USD posted very slight gains in the Asian session and is steady early in European trade.
• 1.1296 is an immediate support line.
• 1.1392 is a weak resistance line and could be tested during the day.
• Current range: 1.1296 to 1.1392

Further levels in both directions:

• Below: 1.1296, 1.1214, 1.1105 and 1.1017
• Above: 1.1392, 1.1470, 1.1658, 1.1712 and 1.1871

OANDA’s Open Positions Ratio

EUR/USD ratio continues to show a strong majority of open positions (58%) on Wednesday. This points to trader sentiment in favor of the dollar breaking out and gaining ground against the euro.

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.