EUR/USD – Euro Subdued in Light Holiday Trade

EUR/USD has started off the week in quiet fashion, as the pair trades at the 1.1200 line in the European session. On the release front, Eurozone Trade Balance slipped to 21.0 billion euros, short of expectations. Later in the day, ECB head Mario Draghi will testify before the European Parliament in Brussels. There are no US releases on the schedule, as US markets are closed for a holiday.

With US markets closed on Monday, one might have expected a sleepy session from the euro, which is trading quietly at the 1.12 line. However, the markets will keep a close eye on the ECB, as Mario Draghi testifies before the European Parliament’s Economic and Monetary Affairs Committee. The ECB has hinted that it may increase its QE program, which currently stands at 60 billion euros/month. Such a move would likely see the euro soften against the dollar. EUR/USD has looked strong of late, and pushed close to the 1.14 line late last week. This marked the pair’s highest level since mid-October.

Eurozone manufacturing numbers continue to slide and raise concerns. Last week, French Industrial Production dropped by 1.6%, while Italian Industrial Production fell by 0.7%. Both readings fell short of expectations. Germany, the bloc’s largest economy, has also been grappling with soft industrial data. German Industrial Production came in at -1.2%, compared to a forecast of +0.2%. This was the indicator’s fourth decline in the past five months. The soft reading comes on the heels of the December report for German Factory Orders, which posted a decline of 0.7%, compared to a gain of 1.5% a month earlier. An important reason for these weak numbers is the slowdown in China, a key trading partner of the Eurozone. Weaker demand from China, the world’s No. 2 economy, has resulted in financial turmoil across the globe and is taking a toll on the German and Eurozone manufacturing sectors. The contagion of the Chinese downturn could spread to other sectors of the Eurozone economy, which could weaken the euro.

Federal Reserve Chair Janet Yellen testified before Congress last week, and her message was markedly different than the upbeat statement from the Fed back in the heady days of December. At that time, the Fed raised rates by 0.25%, the first upward move in a decade, and hinted at a series of rate hikes in 2016. Fast forward to February appearance before Congress, where Yellen refused to rule out negative interest rates. The Fed has rejected making such a move in the past, and this is unlikely to change. Still, it is a relevant scenario, with the Bank of Japan joining the ECB in implementing negative rates. Yellen noted that inflation rates have remained very low due to the strong US dollar and weak oil prices. Given the current economic situation, many experts expect no more than two rate hikes this year, perhaps in June and December. At the same time, any improvement in key US numbers will heat up speculation about a possible March hike.

EUR/USD Fundamentals

Monday (Feb. 15)

• 10:00 Eurozone Trade Balance. Estimate 22.4B. Actual 21.0B
• 14:00 ECB President Mario Draghi Speaks

Upcoming Key Events

Tuesday (Feb. 16)

• Tentative – German Constitutional Court Ruling
• 10:00 German ZEW Economic Sentiment. Estimate 0.1 points

*Key events are in bold

*All release times are EST

EUR/USD for Monday, February 15, 2016

EUR/USD February 15 at 6:30 EST

Open: 1.1222 Low: 1.1188 High: 1.1239 Close: 1.1201

EUR/USD Technical

• EUR/USD has shown marginal movement in the Asian and European sessions
• 1.1172 is a weak support line
• There is resistance at 1.1278
• Current range: 1.1172 to 1.1278

Further levels in both directions:

• Below: 1.1172, 1.1087, 1.0941 and 1.0847
• Above: 1.1278, 1.1349 and 1.1495

OANDA’s Open Positions Ratio

In the EUR/USD ratio, short positions retain a strong majority of positions (62%). This points to trader bias towards the euro breaking out and heading lower.

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.