EUR/USD – Euro Dips as ECB Lowers Inflation Forecast

The euro has recorded slight losses in the Friday session. In the European trade, EUR/USD is trading at 1.1170. In economic news, there are no major events in the eurozone or the US. Germany’s trade surplus improved to EUR 19.8 billion, but this fell short of the forecast of EUR 20.3 billion.

As expected, the ECB kept the benchmark rate pegged at 0.00%, and made no changes to its asset-purchase plan (QE) of EUR 60 billion/month. However, the central bank did surprise the markets by removing its guidance on rate cuts, saying that rates could remain at current levels for an extended period. Previous rate statements had said that interest rates could go lower, so the markets may take the rate statement as a message that the ECB has taken a step closer to winding up its stimulus program. At the same time, the ECB lowered its inflation forecast, acknowledging that inflation levels remain below the ECB’s target of 2.0%. The ECB is now predicting inflation in 2017 at 1.5% in 2017 and 1.3% in 2018. Back in March, the forecast stood at 1.7% in 2017 and 1.6% in 2018. The rate statement made no reference to the QE scheme, which winds up in December. On a brighter note, the ECB revised upwards its growth forecasts for the eurozone – from 1.8% to 1.9% in 2017, and from 1.7% to 1.8% in 2018. Analysts also noted a shift in language, as Draghi characterized risks to the economy as “broadly balanced”, compared to previous warnings that risks were “tilted to the downside”. Drahgi and his ECB colleagues appear in no rush to tighten monetary policy, but at the same time used less dovish language in the rate statement, in order to relieve pressure from Germany, which has been outspoken in demanding tighter monetary policy.

In Washington, former FBI director James Comey testified before the Senate Intelligence Committee on Thursday. The TV ratings were high, but Comey did not deliver any bombshells while on the stand. Comey stated that he was not specifically asked by President Trump to close an investigation into Trump’s alleged ties with Moscow, so it is unlikely that his testimony will be the “smoking gun” that leads to charges of obstruction of justice against Trump. Still, Comey’s testimony raised troubling questions about Trump’s conduct, and will only complicate matters for the beleaguered Trump administration. Investors are growing more skeptical that Trump, who seems to be spending most of his time in damage control mode, will be able to deliver on key promises, and may come to view the president as a lame duck, just months into his presidency. This kind of sentiment could boost the euro against the dollar.

September Eyed as Careful ECB Remains Balanced

EUR/USD Fundamentals

Friday (June 9)

• 2:00 German Trade Balance. Estimate 20.3B. Actual 19.8B
• 2:45 French Industrial Production. Estimate 0.3%
• 2:45 French Government Budget Balance
• 4:00 Italian Quarterly Unemployment Rate. Estimate 11.6%. Actual 11.6%
• 10:00 US Final Wholesale Inventories. Estimate -0.1%

*All release times are EDT

*Key events are in bold

EUR/USD for Friday, June 9, 2017

EUR/USD Friday, June 9 at 5:15 EDT

Open: 1.1214 High: 1.1237 Low: 1.1170 Close: 1.1182

EUR/USD Technical

EUR/USD edged lower in the Asian session but recovered. The pair has posted slight losses in European trade

• 1.1122 is providing support
• 1.1242 is the next resistance line

Further levels in both directions:

• Below: 1.1122, 1.0985 and 1.0873
• Above: 1.1242, 1.1366, 1.1465 and 1.1534
• Current range: 1.1122 to 1.1242

OANDA’s Open Positions Ratio

EUR/USD ratio remains unchanged this week. Currently, short positions have a majority (70%), indicative of EUR/USD continuing to move 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.