EUR/USD – Euro Dips Below 1.10, ECB Expected to Make Move

EUR/USD has posted slight losses on Thursday, as the pair trades just below the 1.10 line in the European session. On the release front, the ECB is widely expected to announce new stimulus measures at its monetary policy meeting. Elsewhere, German Trade Balance dropped and missed expectations. In the US, today’s highlight is Unemployment Claims, which is expected to drop to 272 thousand.

The ECB is widely expected to announce fresh easing steps at its policy meeting, in an attempt to kick-start the economy and lift inflation levels. There are a host of measures that the ECB could adopt, including cutting deposit rates, expanding the bond-purchase program (QE), which currently stands at 60 billion euros/mth and propping bank margins. The ECB has spent some 700 billion euros in the past year under its QE program, but inflation and growth levels have not shown any significant improvement. The markets have learned from experience that the ECB has often taken the easier path and made cosmetic changes rather than implement major steps. If the ECB balks and remains on the sidelines at this meeting, we could see a repeat of what occurred after the January policy meeting, when the markets expected some action but the ECB failed to deliver, resulting in huge gains by the euro. Traders should be prepared for volatility following the ECB rate announcement and press conference.

Weak global economic conditions, particularly the Chinese slowdown, have taken a toll on the Eurozone manufacturing sector, as European manufacturers are struggling to cope with less demand for their products. German manufacturers are also facing tough times, as China is a major export market for the Eurozone’s largest economy. Weaker Chinese demand resulted in a decrease in German exports, as the German trade surplus slipped to EUR 18.9 billion, short of the forecast and its lowest surplus since November 2014.

US Nonfarm Payrolls is one of the most important economic indicators, so an excellent January report should have buoyed the US dollar at against its major rivals late last week. The indicator impressed with a reading of 242 thousand, much higher than the estimate of 195 thousand. This was much stronger than the previous (revised) reading of 171 thousand. The US economy has added an average of 225,000 jobs per month since December, an impressive number considering that the economy has softened in the early part of 2016. Why then, did a stellar NFP release not impress the markets? The reason was that wage growth, which has consistently lagged behind other employment indicators, surprised the markets with a decline of 0.1% in January, the first drop in wages since December 2014. This indicator is closely linked to inflation, since an increase in wages means workers have more money to spend. The indicator’s decline means that that Federal Reserve’s inflation target of about 2.0% remains far off, so the Fed, which is keeping a close eye on the weak inflation picture, is unlikely to press the rate trigger at its policy meeting later this month.

EUR/USD Fundamentals

Thursday (March 10)

• 1:30 French Final Nonfarm Payrolls. Estimate 0.2%. Actual 0.2%
• 2:00 German Trade Balance. Estimate 19.2B. Actual 18.9B
• 2:45 French Industrial Production. Estimate 0.8%. Actual 1.3%
• 4:00 Italian Quarterly Unemployment Rate. Estimate 11.5%. Actual 11.5%
• 7:45 ECB Minimum Bid Rate. Estimate 0.05%
• 8:30 ECB Press Conference
• 8:30 US Unemployment Claims. Estimate 272K
• 10:30 US Natural Gas Storage. Estimate -51B
• 13:01 US 30-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate -198.3B

*Key events are in bold

*All release times are EST

EUR/USD for Thursday, March 10, 2016

EUR/USD March 10 at 5:00 EST

Open: 1.0986 Low: 1.0960 High: 1.0993 Close: 1.0971

EUR/USD Technical

• EUR/USD posted slight losses in the Asian session. The pair has shown marginal movement in European trade
• There is resistance at 1.1087
• 1.0941 remains a weak support line

Further levels in both directions:

• Below: 1.0941, 1.0847, 1.0708 and 1.0616
• Above: 1.1087, 1.1172 and 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged, consistent with the lack of movement from EUR/USD. Short positions have a majority (55%), indicative of trader bias towards EUR/USD continuing to head downwards.

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.