EUR/USD – Euro in Holding Pattern Ahead of US GDP

EUR/USD is unchanged on Friday, after the pair posted small gains in the Thursday session. The pair is trading quietly slightly below the 1.12 line. On the release front, there are no Eurozone events on the schedule. The US will release two key indicators – Preliminary GDP and UoM Consumer Sentiment. As well, Fed chair Janet Yellen will deliver remarks at an event in Boston. Traders should be prepared for possible volatility from EUR/USD in the North American session.

The US economy has shown mixed numbers in the first quarter, and Preliminary GDP, which can be treated viewed as an economic report card, will be closely monitored. Final GDP for the fourth quarter came in at 0.5%, shy of the estimate of 0.7%. The estimate for Preliminary GDP stands at 0.8%, and if the indicator matches or beats this reading, the US dollar could push upwards. The markets also have strong expectations for the UoM Consumer Sentiment report, with an estimate of 95.7 points. In April, this key consumer confidence indicator dipped to 89.0 points, marking the first reading below the symbolic 90 level since November 2014.

The Fed minutes have renewed speculation that the Fed may press the rate trigger in June, and this has bolstered the US dollar. The minutes were more hawkish than expected, resulting in strong volatility in the currency markets. Odds of a rate hike in June increased to 40% earlier this week, compared to just 4% one week ago. Still, the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. On Monday, FOMC member John Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between the hawkish message some FOMC members are sending out and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting. Janet Yellen’s speech on Friday will be closely watched. Will she reinforce the hawkish tone of her FOMC colleagues, or well she dampen growing enthusiasm about a June move?

As the largest economy in the Eurozone, German numbers are closely watched, as they often serve as a bellwether for macro trends in the Eurozone. It’s been a mixed bag for German data this week. German Ifo Business Climate climbed to 107.7 points, above the estimate of 106.9. This was the indicator’s best showing in five months. However, German and Eurozone ZEW Economic Sentiment reports both softened in May and missed expectations, pushing the euro lower. Earlier in the week, German Final GDP recorded a respectable gain of 0.7% in the first quarter. This figure was unchanged from German Preliminary GDP, which also posted a 0.7% gain. With the ECB holding a policy meeting on June 2, German releases will play a key role in the ECB’s decision-making process. Stronger German data would point to an improving Eurozone economy and reduce pressure on the ECB to take monetary action such as cutting interest rates into negative territory.

EUR/USD Fundamentals

Friday (May 27)

• Day 2 – G7 Meetings
• 12:30 US Preliminary GDP. Estimate 0.8%
• 12:30 US Preliminary GDP Price Index. Estimate 0.7%
• 14:00 US Revised UoM Consumer Sentiment. Estimate 95.7
• 14:00 US Revised UoM Inflation Expectations
• 17:15 US Fed Chair Janet Yellen Speaks

*All release times are GMT

EUR/USD for Friday, May 27, 2016

EUR/USD May 27 at 7:15 GMT

Open: 1.1191 Low: 1.1180 High: 1.1201 Close: 1.1181

EUR/USD Technical

• EUR/USD has shown limited movement in the Asian and European sessions
• 1.1172 remains a weak support line and could break during the Friday session
• There is resistance at 1.1278

Further levels in both directions:

• Below: 1.1172, 1.1054, 1.0909 and 1.0821
• Above: 1.1278, 1.1378 and 1.1495
• Current range: 1.1172 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged on Friday, consistent with the lack of movement from EUR/USD. Currently, short and long positions are almost evenly split, indicative of a lack of trader bias as to what direction EUR/USD will take next.

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.