EUR/USD – Euro Hugging 1.09 Ahead of ECB Rate Meeting

The euro has reversed directions on Wednesday and has posted slight gains. Currently, the pair is trading at the 1.09 line. On the release front, the markets will have little data to analyze, with just one event on the schedule, Crude Oil Inventories. There’s plenty of activity on Thursday, as Germany releases Preliminary CPI and the ECB will make an interest rate announcement. In the US, the major indicators are Core Durable Goods Orders and unemployment claims.

The ECB meets for its monthly rate meeting on Thursday, but the markets are not expecting any dramatic news. The benchmark interest rate has been pegged at a flat 0.0% since March 2016, and no changes are expected. With the eurozone showing stronger inflation and growth numbers in the first quarter, there has been speculation that the ECB might taper its asset-purchase program, which runs until December, ahead of schedule. However, the ECB appears in no rush to make any monetary moves, particularly with the current French election and the German election in September.

The markets have been focused on the French presidential election, which began on Sunday. The first round winners, centrist Emmanuel Macron and far-right Marie Le Pen, will face off on May 7, with the winner becoming president. French voters will have a crystal-clear choice between the candidates, who want to take France in very different directions. Macron served as a minister under President Francois Hollande. He favors deregulation and is a staunch supporter of the European Union. Le Pen, who heads the National Front, has campaigned on a ‘France first’ platform, vowing to curb immigration and take France out of the eurozone. Hollande and Francois Fillon, who ran in the first round, have thrown their support behind Macron and asked voters to reject ‘extremism’. Macron is a heavy favorite to win the second round and become president, with polls giving him a comfortable lead of above 60%. Since opinion polls were accurate ahead of the first round of voting, the markets appear to relying on the current polls as well, meaning that a Macron victory has been priced in. Unless this sentiment drastically changes during the week, the election will be a non-event for the market. At the same time, nothing is a sure thing in politics, as underscored by the Brexit vote and the election of Donald Trump, two events which stunned the markets and triggered strong market movement.

US consumer confidence levels remain high, but there was some disappointment as CB Consumer Confidence dropped to 120.3 in April, missing the estimate of 123.7. The softer than expected reading boosted the euro in the Tuesday session. What is troubling analysts is that strong consumer confidence numbers have not translated into increased consumer spending, a key component of economic growth. This trend has been labeled the “hard/soft discrepancy” (confidence being ‘soft’, while actual spending being ‘hard’). This was underscored in March retail sales numbers, which came in at a flat 0.0%, shy of the forecast. Next up is Advance GDP on Friday, which is expected at 1.3 percent. An unexpected GDP reading could have a sharp impact on EUR/USD.

Will the lights stay on in Washington this weekend? President Trump will have to punch in some overtime this week to avoid a shutdown of the federal government on Saturday. Congress must pass a spending bill which will fund the government until October, but the bill requires the backing of 60 senators. This means that the Republicans (who control 52 seats) will need the support of 8 Democrats. This has led to intensive bipartisan negotiations, and it’s reasonable to expect that these talks could go down to the wire, as both sides try to stick to their positions and try not to blink first. The last shutdown was in 2013, lasting 17 days. Another shutdown would be embarrassing for Trump, as it would start on his 100th day in office and would cast doubts on his ability to push his budget and tax plan through Congress.

EUR/USD Fundamentals

Wednesday (April 26)

• 10:30 US Crude Oil Inventories. Estimate -1.1M

Thursday (April 27)

• All Day – German Preliminary CPI. Estimate -0.1%
• 7:45 ECB Minimum Bid Rate. Estimate 0.0%
• 8:30 ECB Press Conference
• 8:30 US Core Durable Goods Orders. Estimate 0.4%
• 8:30 US Unemployment Claims. Estimate 241K

*All release times are EST

*Key events are in bold

EUR/USD for Wednesday, April 26, 2017

EUR/USD April 26 at 5:50 EST

Open: 1.0927 High: 1.0950 Low: 1.0892 Close: 1.0900

EUR/USD Technical

EUR/USD edged higher in the Asian session but has reversed directions in the European session

• 1.0873 remains a weak support level
• 1.0985 is the next line of resistance

Further levels in both directions:

• Below: 1.0873, 1.0708, 1.0616 and 1.0506
• Above: 1.0985, 1.1122 and 1.1242
• Current range: 1.0873 to 1.0985

OANDA’s Open Positions Ratio

EUR/USD ratio is showing slight gains in short positions. Currently, short positions have a solid majority (65%), indicative of EUR/USD continuing to move lower.

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