It’s a quiet start to the week, as EUR/USD trades at 1.0880 line in Monday’s European session. On the release front, there is only one event on the calendar, Italian Trade Balance. US markets are closed for the Martin Luther King holiday.
In the US, last week ended on a mixed note. Core Retail Sales and Retail Sales both posted declines of 0.1%, pointing to weakness in consumer spending, a key driver of economic growth. At the same time, consumer confidence remains at high levels, as the UoM Consumer Sentiment jumped to 93.3 points, beating the estimate and posting a six-month high as well. Inflation levels, one of the sore points in a generally bright economic picture, continue to struggle. PPI, which measures inflation in the manufacturing sector, came in at -0.2%, matching expectations. Still, this marked the third decline in four months, and persistently weak inflation could delay the next Fed rate hike. There was more bad news from the manufacturing front, another trouble spot in the economy. The Empire State Manufacturing Index plunged to -19.4 points, compared to an estimate of -4.1 points.
The euro continues to hold its own against the US dollar, trading close to the 1.09 line. The euro received some help from a solid Eurozone Trade Balance report for November, with a surplus of EUR 22.7 billion, its best showing since April 2015. Recent Eurozone indicators have pointed to stronger growth in the bloc, especially in Germany, the largest economy in Europe. Meanwhile, the minutes from the December ECB policy meeting indicated that some policymakers want to see further cuts to deposit rates as well as an increase in the current QE program of EUR 60 billion/mth. Such moves would likely weaken the euro, so the markets will be keeping a close eye on the upcoming ECB policy meeting on Jan. 21.
The Federal Reserve raised interest rates in December for the first time in nine years, and hinted that this move was the first of a series in 2016. Not surprisingly, this has led to intense market speculation as to the timing of another rate hike. A rate hike in late January is not considered likely, coming so soon after the December move. A hike by the Fed in March is more probable, contingent, however, on a strong US economy. Although the economy is in good shape, one major area of concern is the inflation picture. Inflation levels have not kept up with other economic indicators and remain at low levels. The minutes of the December meeting indicated that some Fed members strongly considered voting against a rate hike due to weak inflation. Another concern is a lack of wage growth, despite a robust labor market. This was underscored by the last Average Hourly Earnings report, which came in at a flat 0.0% in December. The Fed will be keeping a close eye on inflation and wage growth data before pressing the rate trigger for the first time in 2016.
Monday (Jan. 18)
- 4:00 Italian Trade Balance. Estimate 3.24B
*Key events are in bold
*All release times are EST
EUR/USD for Monday, January 18, 2016
EUR/USD January 18 at 2:30 EST
Open: 1.0918 Low: 1.0874 High: 1.0924 Close: 1.0889
- EUR/USD posted slight losses in the Asian session and is flat in European trade.
- 1.0941 remains a weak resistance line
- 1.0847 is providing support
- Current range: 1.0847 to 1.0941
Further levels in both directions:
- Below: 1.0847, 1.0732, 1.0659 and 1.0537
- Above: 1.0941, 1.1087 and 1.1172
OANDA’s Open Positions Ratio
EUR/USD ratio is unchanged, reflective of the lack of movement from the pair. Short positions command a strong majority (57%), indicative of trader bias towards the euro continuing to move downwards.