EUR/USD – Euro Steady as German Economic Sentiment Surges

EUR/USD has posted slight gains on Tuesday, as the pair trades at 1.1330. German ZEW Economic Sentiment jumped to 19.2 points, crushing the estimate of 5.1 points. This marked its sharpest gain in 10 months. Eurozone Economic Sentiment also looked sharp, improving to 20.2 points. Later in the day, the German Federal Court will deliver its ruling on the legality of the ECB’s program to purchase sovereign bonds (OMT). In the US, there are no economic releases for a second straight day. The markets will be listening closely to Federal Reserve Chair Janet Yellen ,who will appear before the Senate Banking Committee and answer questions about the Fed’s Monetary Policy Report.

In or Out? That is the burning question facing millions of Britons, who will go to the polls on Thursday, as the UK votes in a historic referendum on whether to remain in the EU. The campaign between the “In” and “Out” camps will go down to the wire, as polls predict a close vote. The British pound, which has become a barometer of the vote, continues to gain against the US dollar and the euro, as some recent polls show the “In” camp with a slight lead. Prime Minister David Cameron and a slew of prominent business people have warned that that a vote to leave the EU would hurt the UK economy, and a recent Treasury report says an EU exit will wipe out 800,000 jobs in the UK and cause a recession. The “Out” camp counters that EU over-regulation has stifled British businesses, and point to countries such as Switzerland that have close economic relations with the EU but are not part of the bloc. Still, leaving the comfort zone of the EU would be a journey into the unknown, and analysts predict that if the UK exits the EU, the pound could dive by as much as 10 percent.

On Tuesday, the German Federal Court will hand down its ruling on the legality of the ECB’s Outright Monetary Transactions (OMT) program. This scheme, which has yet to be used, allows the ECB to purchases sovereign bonds from EU members that are in financial trouble and may have difficulty borrowing on the international markets. The European Court of Justice, which is the highest legal authority in the EU has ruled OMT is legal. However, German plaintiffs have challenged the legality of OMT, and this decision by the German court will determine if the program is in compliance with German law.

With the Fed opting to stand pat again in June, the markets are speculating on the timing of another rate hike. In the heady days of December when the Fed raised interest rates, there was talk of up to four hikes in 2016. Fast forward to June, and the Fed hasn’t made a move so far this year. Many analysts are predicting only one hike in 2016, but on Friday, St. Louis Fed President James Bullard said that the economy may need just one hike in the next 2-1/2 years. Bullard did not mince words, bluntly stating that the Fed had done a poor job in its predictions about the US economy, and said the markets have no faith in the Fed’s “dot plot” of projected interest rate policy, as the Fed’s actual pace of rate hikes was much slower than its projections. Bullard added that this “mismatch” between word and action had caused distortions in the global financial markets and eroded credibility in the Federal Reserve.

EUR/USD Fundamentals

Tuesday (June 21)

• Tentative – German Constitutional Court Ruling
• 9:00 German ZEW Economic Sentiment. Estimate 5.1. Actual 19.2 
• Eurozone ZEW Economic Sentiment. Estimate 15.3. Actual 20.2
• 13:00 ECB President Mario Draghi Speaks
• 14:00 Federal Reserve Chair Janet Yellen Testifies
• 18:30 US FOMC Member Jerome Powell Speaks

Upcoming Key Events

Wednesday (June 22)

• 14:00 Federal Reserve Chair Janet Yellen Testifies
• 14:00 US Existing Home Sales. Estimate 5.53M

* Key releases are in bold

*All release times are GMT

EUR/USD for Tuesday, June 21, 2016

EUR/USD June 21 at 9:05 GMT

Open: 1.1347 Low: 1.1328 High: 1.1382 Close: 1.1334

EUR/USD Technical

• EUR/USD posted small gains in the Asian sessions and is flat in European trade
• 1.1278 is providing support
• There is resistance at 1.1376

Further levels in both directions:

• Below: 1.1278, 1.1150, 1.1054 and 1.0909
• Above: 1.1376, 1.1495, 1.1616
• Current range: 1.1278 to 1.1376

OANDA’s Open Positions Ratio

EUR/USD ratio is showing movement towards short positions. Short positions have a majority (56%), indicative of trader bias towards EUR/USD reversing directions and moving lower.

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