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EUR/USD – Euro Inches Higher as German, Eurozone Services PMIs Within Expectations

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.

EUR/USD Fundamentals

Wednesday (October 4)

Thursday (October 5)

*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 Technical

S1 S2 S1 R1 R2 R3
1.1489 1.1611 1.1712 1.1876 1.1996 1.2018

EUR/USD edged upwards in the Asian session and has ticked lower in European trade

Further levels in both directions:

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.

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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