EUR/USD – Euro Trading Quietly, German Manufacturing PMI Improves

EUR/USD is steady on Monday, continuing the lack of movement which has characterized the pair since last week. The pair is trading at the 1.12 line in the European session. On the release front, German Manufacturing PMI improved to 52.4 points, above the estimate. Eurozone Manufacturing PMI remained at 51.5 points, below expectations.

What’s next for the ECB? The central bank held the course in April and kept the benchmark rate at zero. At the April policy meeting, ECB president Mario Draghi said that he expected interest rates to remain at current levels or lower for an extended period, warning that he would take action to combat the threat of deflation.  Although there has been some improvement in growth in the Eurozone, inflation levels have not improved, as underscored by last week’s Eurozone Final CPI. The April report dipped to -0.2%, marking its second decline in three months. Core CPI was stronger at 0.7%, but this was lower than the previous reading of 1.0%. With the threat of deflation posing a major headache for the ECB, Mario Draghi and Co. are under strong pressure to take action and bolster inflation. However, it’s questionable if the ECB has any monetary ammunition left, as interest rates are at zero and the QE program was expanded earlier this year. Further easing would weaken the euro, so the fact that the ECB has remained on the sidelines has helped the euro trade at high levels.

The highly-anticipated Federal Reserve minutes were more hawkish than expected, resulting in strong volatility in the global currency markets. The US dollar posted strong gains against most of the major currencies, including the euro, which is struggling to stay above the 1.12 level. The minutes indicated that a June rate hike remains firmly on the table, and the currency markets have reacted with strong volatility. According to the minutes, the Fed wants to see stronger growth in the second quarter as well as better numbers from the inflation and employment fronts. If this is achieved, the Fed said it “likely would be appropriate” to raise rates at the June meeting. This message is somewhat hawkish in comparison to recent statements by Fed chair Janet Yellen, which were more cautious about the strength of the US economy. The markets were skeptical that June would be a “live meeting”, with most analysts assuming that the Fed would continue to sit on the sidelines. The minutes have drastically changed market sentiment, however, since it’s clear that the June meeting will be crucial, as it could mark the Fed’s first interest rate hike this year. With the Fed saying that a key factor in a rate hike decision will be the strength of the US economy, upcoming major economic indicators will be under the market microscope, particularly inflation and employment numbers.

EUR/USD Fundamentals

Monday (May 23)

  • 7:00 French Flash Manufacturing PMI. Estimate 49.0. Actual 48.3
  • 7:00 French Flash Services PMI. Estimate 50.8. Actual 51.8
  • 7:30 German Flash Manufacturing PMI. Estimate 52.1. Actual 52.4
  • 7:30 German Flash Services PMI. Estimate 54.6. Actual 55.2
  • 8:00 Eurozone Flash Manufacturing PMI. Estimate 51.9. Actual 51.5
  • 8:00 Eurozone Flash Services PMI. Estimate 53.3. Actual 53.1
  • 10:15 US FOMC Member James Bullard Speaks
  • 13:45 US Flash Manufacturing PMI. Estimate 51.0
  • 14:00 Eurozone Consumer Confidence. Estimate -9

*Key events are in bold

*All release times are GMT

EUR/USD for Monday, May 23, 2016

EUR/USD May 23 at 8:45 GMT

Open: 1.1219 Low: 1.1203 High: 1.1243 Close: 1.1203

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0909 1.1054 1.1172 1.1278 1.1378 1.1495
  • EUR/USD was flat in the Asian session and has posted small gains in European trade
  • 1.1172 is providing support
  • There is resistance at 1.1278

Further levels in both directions:

  • Below: 1.1172, 11054 and 1.0909
  • Above: 1.1278, 1.1378, 1.1495 and 1.1609
  • Current range: 1.1172 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little change on Monday, consistent with the lack of movement from EUR/USD. Short positions command a majority (55%). This is indicative of strong trader bias towards EUR/USD breaking out and dropping to lower levels.

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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.