EUR/USD – Euro Steady as German ZEW Economic Sentiment Unchanged

The euro has edged lower on Tuesday, following strong gains in the Monday session. Currently, EUR/USD is trading slightly above the 1.06 line. On the release front, German Final CPI posted a small gain of 0.1%. German ZEW Economic Sentiment remained unchanged at 13.8 points, short of the forecast of 14.2 points. Eurozone ZEW Economic Sentiment jumped to 18.1 points, easily beating the forecast of 16.5 points. This was the indicator’s highest level in six months. On Wednesday, the Federal Reserve sets the benchmark interest rate and we’ll also get a look at retail sales reports.  

The euro posted strong gains to start off the week, gaining 100 points in the Monday session. The euro posted sharp losses late last week, after the ECB extended its quantitative easing program (QE) until December 2017. The ECB also decided to reduce asset purchases to EUR 60 billion in April. Mario Draghi made a rather dubious claim that the cut in purchases did not amount to tapering, apparently wanting to downplay the significance of the move. Some analysts wryly noted that by not calling the cut a taper, Draghi will find it easier to increase purchases if the Eurozone economy tanks. The decision to cut purchases can be supported by the fact that the Eurozone economy has shown improvement in the latter half of 2016, and inflation and growth projections for the Eurozone have been revised upwards. Still, there are rough waters ahead for the Eurozone, which must deal with the fallout of the Italian referendum and trouble in the Italian banking system, as well as upcoming negotiations with Britain ahead of its withdrawal from the European Union.

All eyes are on the Federal Reserve, which meets for a crucial policy meeting on Wednesday. The markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback.  Even though the rate hike has been expected (and priced in) for some time, such a momentous move could boost the greenback following a rate hike. What can we expect from the Fed after the hike? The Fed has indicated that it plans to raise rates gradually in 2017. However, this could change, given Trump’s declarations to increase government spending and cut taxes, which could lead to higher inflation levels. Once the new administration’s economic policies become clearer, the Fed may send signals to the markets as to its rate plans in early 2017.

EUR/USD Fundamentals

Tuesday (December 13)

• 7:00 German Final CPI. Estimate 0.1%. Actual 0.1%
• 7:00 German WPI. Estimate 0.3%. Actual 0.1%
• 9:00 Italian Industrial Production. Estimate 0.3%. Actual 0.0%
• 10:00 German ZEW Economic Sentiment. Estimate 14.2. Actual 13.8
• 10:00 Eurozone Employment Change. Estimate 0.3%. Actual 0.2%
• 10:00 Eurozone ZEW Economic Sentiment. Estimate 16.5. Actual 18.1
• 11:00 US NFIB Small Business Index. Estimate 96.7
• 13:30 US Import Prices. Estimate -0.3%
• 18:01 US 30-year Bond Auction

Upcoming Key Events

Wednesday (December 14)

• 13:30 US Core Retail Sales. Estimate 0.4%
• 13:30 US PPI. Estimate 0.1%
• 13:30 US Retail Sales. Estimate 0.3%
• 19:00 US FOMC Economic Projections
• 19:00 US FOMC Statement
• 19:00 US Federal Funds Rate. Estimate <0.75%
• 19:30 US FOMC Press Conference

*All release times are GMT

* Key events are in bold

EUR/USD for Tuesday, December 13, 2016

EUR/USD December 13 at 10:10 GMT

Open: 1.0641 High: 1.0650 Low: 1.0611 Close: 1.0616

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted small losses in European trade
• 1.0616 is under pressure as support
• 1.0708 is the next line of resistance

Further levels in both directions:

• Below: 1.0616, 1.0506, 1.0414 and 1.0287
• Above:1.0708, 1.0821 and 1.0957
• Current range: 1.0616 to 1.0708

OANDA’s Open Positions Ratio

EUR/USD ratio is showing gains in short positions. Currently, long positions have a majority (58%), indicative of trader bias towards EUR/USD reversing directions and moving upwards.

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.