EUR/USD – Euro Ticks Higher Ahead of FOMC Statement

EUR/USD has posted small gains on Wednesday, following sharp losses in the Tuesday session. The pair is trading slightly above the 1.12 level. On the release front, Eurozone Trade Balance jumped to EUR 28 billion, well above the estimate. Today’s highlight is the FOMC rate statement, with the markets expecting the Fed to maintain the current benchmark rate of 0.25%. As well, the US will release PPI, with the estimate standing at 0.3%.

All eyes are on the Federal Reserve’s policy meeting, which will conclude with a rate statement later on Wednesday. The markets have written off a rate hike in June, while a July move remains unlikely, according to the CME Group. The chances of a June hike are just 1.9% compared to a 26.3% in May. The chances of a July hike is 17.9%, compared to 43.2% in May. The sharp drop in market sentiment for a rate hike can be attributed to the dismal US Nonfarm Payrolls report as well as some backpedaling by Fed over the past few weeks. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in “the coming months”. Since then, Yellen has sounded more cautious, and in a recent speech she was careful to avoid a time frame regarding a rate hike. To be fair, the Fed has made a strong effort to communicate clearly with the markets, and has stated that the timing of a rate hike would be data-dependent. With the US economy posting some mixed numbers and inflation levels remaining at low levels, it should not come as a surprise that the Fed may stay on the sidelines until September or even later. Although it’s extremely unlikely that the Fed will make a move in June, the markets will be carefully monitoring the rate statement, looking for some clues regarding a July or September hike.

With the Brexit referendum vote just over a week away, the markets are showing jitters as recent polls show the “Leave” camp with a majority. The pound and the euro are under pressure, and this will likely continue next week. The referendum on whether the UK will remain in the European Union has ramifications for the global economy, and key figures are weighing in on the repercussions if the UK votes to exit the EU. British Prime Minister David Cameron, Germany chancellor Angela Merkel and International Monetary Fund managing director Christine Lagarde have warned that a British departure could hurt the global economy. Federal Reserve Chair Janet Yellen has said that a vote to leave the EU could delay a rate hike in the US. On Tuesday, an anonymous ECB official stated that if the UK voted to depart the EU, the ECB would immediately announce that it was committed to supporting the financial markets and maintaining adequate market liquidity. This would involve opening “swap lines” with the BoE, which would provide unlimited funding, in both euros and pounds, to European banks. Clearly, the EU is extremely concerned about the vote, which could have huge ramifications on the currency markets if the “Leave” camp emerges victorious.

EUR/USD Fundamentals

Wednesday (June 15)

• 6:45 French Final CPI. Estimate 0.4%. Actual 0.4%
• 9:00 Eurozone Trade Balance. Estimate 21.6B. Actual 28.0B
• Tentative – German 10-year Bond Auction
• 12:30 US PPI. Estimate 0.3%
• 12:30 US Core PPI. Estimate 0.1%
• 12:30 US Empire State Manufacturing Index. Estimate -3.4
• 13:15 US Capacity Utilization Rate. Estimate 75.2%
• 13:15 US Industrial Production. Estimate -0.2%
• 14:00 German Buba President Jens Weidmann Speaks
• 14:30 US Crude Oil Inventories
• 18:00 US FOMC Economic Projections
• 18:00 FOMC Statement
• 18:00 US Federal Funds Rate. Estimate <0.50%
• 18:30 US FOMC Press Conference
• 20:00 US TIC Long-Term Purchases

Upcoming Key Releases

Thursday (June 16)

• 12:30 US CPI. Estimate 0.3%
• 12:30 US Core CPI. Estimate 0.2%
• 12:30 US Philly Fed Manufacturing Index. Estimate 1.1
• 12:30 US Unemployment Claims. Estimate 267K

* Key releases are in bold

*All release times are GMT

EUR/USD for Wednesday, June 15, 2016

EUR/USD June 15 at 9:40 GMT

Open: 1.1210 Low: 1.1189 High: 1.1235 Close: 1.1227

EUR/USD Technical

• EUR/US was flat in the Asian session and has posted small gains in the European session
• There is resistance at 1.1278
• 1.1150 is providing support

Further levels in both directions:

• Below: 1.1150, 1.1054 and 1.0909
• Above: 1.1278, 1.1376, 1.1495 and 1.1638
• Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged on Wednesday, consistent with the lack of movement from EUR/USD. Short positions have a slight majority (55%), indicative of slight trader bias towards EUR/USD breaking out and moving to lower ground.

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.