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EUR/USD – Euro Unchanged Despite Sharp German Business Climate

EUR/USD is unchanged on Monday, as the pair trades quietly at the 1.12 line. On the release front, the German Ifo Business Climate jumped to 109.5 points, beating the estimate of 106.3 points. Later in the day, ECB head Mario Draghi testifies before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels. In the US, the sole economic event on the schedule is New Home Sales. On Tuesday, the US releases CB Consumer Confidence, a key consumer indicator.

The markets have had a few days to digest the Federal Reserve’s policy statement, and during that time, EUR/USD has gained ground, pushing past the 1.12 line. 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 to hold rates, 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 continuing divisiveness within the Fed, 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 back in December 2016 promised up to four rate hikes in 2016, but so far has yet to raise rates this year.

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. 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.

EUR/USD Fundamentals

Monday (September 26)

Tuesday (September 27)

*All release times are EDT

* Key events are in bold

EUR/USD for Monday, September 26, 2016

EUR/USD September 26 at 8:45 GMT

Open: 1.1238 High: 1.1244 Low: 1.1230 Close: 1.1242

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0957 1.1054 1.1150 1.1278 1.1376 1.1467

Further levels in both directions:

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Monday session. Currently, short positions have a majority (55%), indicative of trader bias towards EUR/USD breaking out and moving lower.

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.

Kenny Fisher

Kenny Fisher [4]

Market Analyst at OANDA [5]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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