EUR/USD is showing little movement on Friday, as the pair trades at the 1.12 line. On the release front, Eurozone and German Manufacturing PMIs beat expectations, but Services PMI readings fell short of the forecast. The US wraps up the week with one minor event, Flash Manufacturing PMI.
US numbers were a mixed bag on Thursday. Unemployment Claims sparkled, dropping to just 252 thousand, the lowest weekly level since mid-April. The excellent figure underscored a labor market which continues to approach full capacity. The news was not as positive from the housing sector, as Existing Home Sales slipped in August to 5.33 million, marking a five-month low. Earlier this week, Building Permits and Housing Starts both softened in August and missed their estimates.
All eyes were on the Federal Reserve on Wednesday, as the central bank set interest rates and released a policy statement. As widely expected, the bank maintained the benchmark interest rate at 0.25%, where it has been pegged since last December. In a highly unusual step, however, three of the ten FOMC members dissented with the decision. Esther George, Loretta Mester and Eric Rosengren voted against holding rates steady, preferring to raise rates immediately by a quarter-percentage point. This was the first time since December 2014 that three FOMC voting members have dissented with the Fed rate decision. This significant dissent within the FOMC underscores that Janet Yellen has been unable to “rally the troops” behind her leadership, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”. Recent comments from FOMC members regarding a rate hike have conflicted with each other, and the mixed messages have left the markets confused. The surprising level of dissent in Wednesday’s Fed announcement will do little to restore market confidence in the Fed, which failed on its promise to deliver a series of rate hikes in 2016.
The Fed policy statement noted strong growth in employment and consumer spending, but added that business fixed investment remains weak. The Fed’s “dot plot” indicated that policymakers expect a quarter-rate hike before the end of the year. The Fed’s current stance is being called a “hawkish hold” as the Fed has put the markets on notice that a December rate hike is likely. Using typically bland language, the Fed stated that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Reading between the lines, the Fed is looking for stronger inflation numbers, and upcoming inflation indicators (as well as consumer spending and employment) will have a significant impact on the odds of a December rate hike. The Fed sounded dovish about future rate moves, scaling back projections for 2017 from three to two hikes. As well, the Fed cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent.
Friday (September 23)
- 7:00 French Flash Manufacturing PMI. Estimate 48.4. Actual 49.5
- 7:00 French Flash Services PMI. Estimate 52.0. Actual 54.1
- 7:30 German Flash Manufacturing PMI. Estimate 53.2. Actual 54.3
- 7:30 German Flash Services PMI. Estimate 52.2. Actual 50.6
- 8:00 Eurozone Flash Manufacturing PMI. Estimate 51.5. Actual 52.6
- 8:00 Eurozone Flash Services PMI. Estimate 52.8. Actual 52.1
- 13:00 Belgian NBB Business Climate. Estimate -2.6
- 13:45 US Flash Manufacturing PMI. Estimate 52.1
*All release times are EDT
* Key events are in bold
EUR/USD for Friday, September 23, 2016
EUR/USD September 23 at 9:15 GMT
Open: 1.1208 High: 1.1218 Low: 1.1192 Close: 1.1205
- EUR/USD posted small losses in the Asian session but has recovered 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, 1.0957 and 1.0821
- Above: 1.1278, 1.1376 and 1.1467
- Current range: 1.1150 to 1.1278
OANDA’s Open Positions Ratio
EUR/USD ratio is showing movement towards short positions. Currently, short positions have a majority (56%), indicative of trader bias towards EUR/USD breaking out and moving upwards.
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