The euro is showing little movement in the Wednesday session. Currently, EUR/USD is trading at 1.1760, up 0.13% on the day. It’s a busy day in the US and Europe. In the Eurozone, German Services PMI matched its estimate of 55.6, while the Eurozone Services PMI improved to 55.8, above the forecast of 55.6 points. Later in the day, ECB head Mario Draghi will speak at an event in Frankfurt. In the US, ADP Nonfarm Payrolls kicks off this week’s job reports, with the indicator expected to slow to 131 thousand. The ISM Nonfarm Manufacturing PMI is forecast to edge up to 55.5 points. We’ll also hear from Federal Reserve Chair Janet Yellen, who will deliver remarks at an event hosted by the St. Louis Fed.
The crisis in Catalonia has not affected the euro so far, but the situation remains volatile, as the Spanish government and the Catalan regional government remain deadlocked over Sunday’s independent referendum. The violence between police and voters left close to 900 civilians injured, and tensions remains high. Catalan officials claim that 90 percent of the votes were if favor of independence, but the national government has declared the vote unconstitutional and illegal. On Wednesday, Catalonia declared a general strike and some 700,000 people demonstrated in Barcelona. Catalan Carles Puigdemont has not showed any intent to back down, warning that his government plans to act in a matter of days. The crisis is not expected to weigh on the euro, as the referendum is viewed as an issue local to Spain, and not to the eurozone in general. As well, the Spanish economy is in good shape, so a constitutional crisis is unlikely to affect the country’s economic growth.
Will the Fed make a rate move in December? Just a few weeks ago, federal futures had priced in a December hike at below 50 percent, but the odds have surged to 76 percent, according to the latest CME Fed Watch release. Although FOMC members remain divided on the prudence of another rate hike in 2017, Fed Chair Janet Yellen has broadly hinted that she favors a December move, and the markets have picked up on her message. The US economy continues to perform well, and the labor market remains close to capacity. The Achilles heel in an otherwise strong economy is inflation, which remains well below the Fed’s target of 2 percent. If sentiment towards a December hike remains high, the US dollar could gain ground.
After failing to pass a new health care act through a skeptical Congress, Donald Trump has now set his sights on tax reform, another key campaign pledge from Trump’s election campaign. Last week, the White House announced the new tax proposal, called the Unified Tax Reform Framework, which includes lowering corporate and personal income taxes. However, the plan is sketchy and short on specifics, most importantly, how will the plan be paid for? Trump has insisted that the cuts will trigger strong economic growth which will more than pay for itself. However, Moody’s, the well-respected credit rating company, is not impressed by the rhetoric. On Monday, Moody’s said that the tax plan is “likely credit negative”, arguing that tax cuts would not be offset in spending cuts, which would result in a higher federal budget deficit and debt. The reduction in federal government revenue would negatively affect the US credit rating. Some Republican lawmakers have already come out against the plan, so it appears that the proposal will have an uphill battle to pass through the House of Representatives and the Senate.
Wednesday (October 4)
- 3:15 Spanish Services PMI. Estimate 55.5. Actual 56.7
- 3:45 Italian Services PMI. Estimate 54.8. Actual 53.2
- 3:50 French Services PMI. Estimate 57.1. Actual 57.0
- 3:55 German Final Services PMI. Estimate 55.6. Actual 55.6
- 4:00 Eurozone Final Services. Estimate 55.6. Actual 55.8
- 5:00 Eurozone Retail Sales. Estimate 0.3%
- Tentative – German 10-year Bond Auction
- 8:15 US ADP Nonfarm Employment Change. Estimate 131K
- 9:45 US Final Services PMI. Estimate 55.1
- 10:00 US ISM Non-Manufacturing PMI. Estimate 55.5
- 10:30 US Crude Oil Inventories. Estimate -0.5M
- 13:15 ECB President Mario Draghi Speaks
- 15:15 Federal Chair Janet Yellen Speaks
Thursday (October 5)
- 7:30 ECB Monetary Policy Meeting Accounts
- 8:30 US Unemployment Claims. Actual 266K
*All release times are GMT
*Key events are in bold
EUR/USD for Wednesday, October 4, 2017
EUR/USD Wednesday, October 4 at 4:10 EDT
Open: 1.1745 High: 1.1780 Low: 1.1735 Close: 1.1760
EUR/USD edged upwards in the Asian session and has ticked lower in European trade
- 1.1712 is a support line
- 1.1876 is the next resistance line
Further levels in both directions:
- Below: 1.1712, 1.1611 and 1.1489
- Above: 1.1876, 1.1996, 1.2018 and 1.2108
- Current range: 1.1712 to 1.1876
OANDA’s Open Positions Ratio
EUR/USD ratio is unchanged in the Wednesday session. Currently, short positions have a majority (66%), indicative of EUR/USD reversing directions and moving lower.