EUR/USD continues to have an uneventful week. The pair is trading at 1.1370 on Wednesday. In economic news, there are no Eurozone releases, so it could remain a quiet day for the euro. In the US, today’s key event is JOLTS Jobs Openings. The employment indicator is expected to dip to 5.67 million. We’ll also get a look at Crude Oil Inventories, with the markets expecting a strong decline of 3.2 million barrels.
Federal Reserve Chair Janet Yellen delivered a closely-watched speech on Monday, but the markets were disappointed with her lack of specifics, and EUR/USD showed no movement. Speaking at the World Affairs Council in Philadelphia, Yellen said she remained optimistic about the US economy and hinted that the Fed would raise interest rates, but crucially, she gave no indication as to when that might occur. This omission was in sharp contrast to her remarks just over a week ago, when she declared that a hike would likely be appropriate “in the coming months”. Yellen was cautious in her tone on Monday, saying “[i]f incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective as I expect, further gradual increases in the Federal Funds Rate are likely to be appropriate”. Yellen played down the dismal Nonfarm Payroll report, saying that the markets shouldn’t attach too much significance to one soft report. The markets had lowered expectations for a June rate hike after the dismal NFP report on Friday, and Yellen’s speech has all but priced a rate hike at next week’s Fed policy meeting. However, a rate increase in July or September remains on the table,  and any decision by the Fed to raise or maintain rates will be data-dependent, particularly on inflation and employment data.
US employment numbers continue to raise concerns. On Monday, the Labor Market Conditions Index dropped 4.9 points, marking a fourth consecutive decline. This was followed by Revised Nonfarm Productivity, which dropped 0.6%. These soft figures were not a major surprise, coming on the heels of a dismal Nonfarm Payrolls report on Friday. This event is one of the most important indicators, and a dismal April report of just 38 thousand stunned the markets. The weak figure marked the smallest increase in payrolls since August 2010. The estimate stood at 159 thousand, which was almost identical to the previous release. The shocking figure resulted in the US dollar took a beating on the currency markets on Friday.
On Wednesday, the ECB released its annual report on the euro, which examined the role of the currency in the global financial system. According to the ECB, the euro’s importance declined in 2015, continuing a trend which has resulted from ultra-low interest rates and negative yields. This marked a sixth straight annual decline in global use of the euro. The ECB found that the “euro remained the second-most important currency in the international monetary system, but with a significant gap to the US dollar”. In 2015, the dollar was used in 43% of global payments, followed by the euro, with a 28.4% market share. The ECB said that “official holders of foreign-exchange reserves have increasingly diversified into non-traditional reserve currencies since the onset of the financial crisis”. The ECB also took note of China’s greater involvement in the currency markets, suggesting that one reason for the fall in euro currency reserves could be the fact that China has started to report some of its currency holdings to the IMF.
The ECB remained on the sidelines last week, maintaining its benchmark interest rate at a flat 0.00% and its QE program at EUR 80 billion/mth. Depending on one’s view, the health of the Eurozone economy can be looked at as half-full or half-empty. Mario Draghi related to both views in his remarks after the ECB’s policy meeting. He acknowledged that the inflation picture is bleak, and said that inflation levels could remain at present levels or even drop into negative territory. On the other hand, he took note of improved growth in the bloc in the first quarter, as the ECB revised its GDP forecast for 2016 slightly upwards, to 1.6%. Draghi sounded cautiously optimistic about the economy, although one could make the argument that his job description requires putting a positive spin on the the economic health of the Eurozone.
Wednesday (June 8)
- 14:00 US JOLTS Job Openings. Estimate 5.67 M
- 14:30 US Crude Oil Inventories. Estimate -3.2M
- 17:01 US 10-year Bond Auction
Upcoming Key Events
Thursday (June 9)
- 7:00 ECB President Mario Draghi Speaks
- 12:30 US Unemployment Claims. Estimate 269K
* Key releases are in Bold
*All release times are GMT
EUR/USD for Wednesday, June 8, 2016
EUR/USD June 8 at 9:20 GMT
Open: 1.1356 Low: 1.1354 High: 1.1377 Close: 1.1370
- EUR/US has been flat in the Asian and European sessions
- 1.1278 is providing strong support
- 1.1376 was tested in resistance earlier and could break during the day
Further levels in both directions:
- Below: 1.1278, 1.1054 and 1.0909
- Above: 1.1376, 1.1495 and 1.1638
- Current range: 1.1278 to 1.1376
OANDA’s Open Positions Ratio
EUR/USD ratio is almost unchanged on Wednesday. This is consistent with the lack of movement shown by EUR/USD. Short positions have a majority (59%), indicative of trader bias towards EUR/USD breaking out and climbing to higher ground.
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