EUR/USD – Euro plunges on dovish ECB, Eurozone CPI matches forecast

EUR/USD has steadied in the Friday session, after sharp losses on Thursday. Currently, the pair is trading at 1.1603, up 0.30% on the day. On the release front, German WPI posted a strong gain of 0.8%, well above the estimate of 0.3%. In the eurozone, Final CPI rose to 1.9% and Final Flash CPI climbed to 1.1.%, as both readings matched their estimates. As well, the eurozone trade surplus narrowed to EUR 18.1 billion, shy of the estimate of EUR 21.2 billion. In the U.S, the Empire State Manufacturing Index is expected to drop to 19.1 points. We’ll also get a look at UoM Consumer Confidence, which is forecast to soften to 98.5 points.

The euro plunged to a 2-week low on Thursday, in response to a dovish rate statement from the ECB and remarks from ECB President Draghi. The ECB pledged to taper its bond-purchase program to EUR 15 billion/mth, in October, down from the current pace of EUR 30 billion/mth. The program will wind up at the end of the year. However, investors detected a ‘dovish flavor’ to the announcement, as the ECB added that interest rates would remain steady “at least through the summer of 2019”, giving policymakers plenty of wiggle-room to delay any rate hikes. The markets were anticipating a rate hike shortly after the end of the bond-purchase program, so this announcement was a disappointment. Draghi sounded dovish in his press conference, saying that the eurozone economy was facing “increasing uncertainty”. Draghi was likely referring to the G-7 meeting which ended in disarray as well as the election of a euro-sceptic government in Italy. The ECB also lowered its growth forecast for the eurozone to 2.1%, down from 2.4% earlier this year.

As widely expected, the Federal Reserve raised interest rates by a quarter-point, to a range between 1.75 percent and 2.00 percent. Fed Chair Jerome Powell sounded hawkish in his press conference, saying that the economy was performing well and that “overall outlook for growth remains favorable”. This message echoed the rate statement, in which policymakers said that “economic activity has been rising at a solid rate”, pointing to stronger consumer spending and business investment. What was may have been the most notable development was that the Fed rate projections were revised upwards, predicting two additional rate hikes in 2018, for a total of four hikes. Until now, the Fed had projected three rate hikes this year. This represents a nod to the strength of the U.S economy and could boost the dollar against its rivals.

  The Euro is circling the drain

EUR/USD Fundamentals

Friday (June 15)

• 2:00 German WPI. Estimate 0.3%. Actual 0.8%
• 5:00 Eurozone Final CPI. Estimate 1.9%. Actual 1.9%
• 5:00 Eurozone Final Core CPI. Estimate 1.1%. Actual 1.1%
• 5:00 Eurozone Trade Balance. Estimate 20.2B. Actual 18.1B
• 8:30 US Empire State Manufacturing Index. Estimate 19.1
• 9:15 US Capacity Utilization Rate. Estimate 78.1%
• 9:15 US Industrial Production. Estimate 0.2%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 98.5
• 10:00 US Preliminary UoM Inflation Expectations
• 16:00 US TIC Long-Term Purchases. Estimate 58.5B

*All release times are DST

*Key events are in bold

EUR/USD for Friday, June 15, 2018

EUR/USD for June 15 at 5:35 DST

Open: 1.1569 High: 1.1615 Low: 1.1543 Close: 1.1603

EUR/USD Technical

EUR/USD broke through several support lines on Thursday. On Friday, the pair was flat in the Asian session and has posted slight gains in European trade

• 1.1448 is providing support
• 1.1613 was tested earlier in resistance. It could break during the Friday session

Further levels in both directions:

• Below: 1.1448, 1.1312 and 1.1190
• Above: 1.1613, 1.1718 and 1.1809
• Current range: 1.1448 to 1.1613

OANDA’s Open Positions Ratio

EUR/USD ratio is showing strong gains in long positions. This is consistent with sharp losses by EUR/USD on Thursday. Currently, long positions have a majority (62%), indicative of trader bias towards EUR/USD continuing to climb to higher ground.

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.