EUR/USD – Euro edges lower, investors eye Draghi, U.S. inflation

EUR/USD has edged lower in the Tuesday session. Currently, the pair is trading at 1.1435, down 0.28% on the day. On the release front, French Final CPI improved to 0.0%, matching the forecast. The eurozone trade surplus jumped to EUR 15.1 billion, a 3-month high. This easily beat the estimate of EUR 13.2 billion. Later in the day, ECB President Draghi testifies about the ECB Annual Report. On Wednesday, Germany publishes Final CPI.

Germany’s economic data is closely watched, as the economy is a bellwether not just for the eurozone, but for the global economy as well. Germany has not yet released GDP data for the fourth quarter, but officials have reported that it will be a ‘slight gain’. The German economy grew 1.5% in 2018, the lowest level of growth since 2013. A key reason for the weak expansion is the ongoing global trade war, which has taken a bite out the export sector and dampened manufacturing activity. German Industrial production has fallen for three successive months, and eurozone industrial production is also pointing downwards.

On the bright side, German unemployment is at record lows and domestic demand has remained strong. The ECB winded up its stimulus program last month and had expressed plans to raise rates later this year. However, this is unlikely to happen unless economic conditions improve the eurozone.

The Federal Reserve has made a U-turn on monetary policy, but by how much? There is a large discrepancy between Fed forecasts and market expectations, which could result in volatility in the currency markets, as traders try to figure out what the Fed will do in 2019. The most recent projections from individual policymakers in the Federal Open Market Committee (FOMC) stands at two rate hikes this year, but the markets are expecting the Fed to hold pat and not raise rates in 2019. Moreover, the markets have priced in a rate cut before the end of the year at 28 percent. On Monday, former Fed Chair Janet Yellen said that she expected the Fed to take a breather, saying that it’s ‘very possible’ that the Fed has made its last hike of this cycle.

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EUR/USD Fundamentals

Tuesday (January 15)

• 2:45 French Final CPI. Estimate 0.0%. Actual 0.0%
• 2:45 French Government Budget Balance. Actual -95.6B
• 5:00 Eurozone Trade Balance. Estimate 13.2B. Actual 15.1B
  
• 8:30 US PPI. Estimate -0.1%
• 8:30 US Core PPI. Estimate 0.2%
• 8:30 US Empire State Manufacturing Index. Estimate 11.6
• 10:00 ECB President Draghi Speaks
• 10:00 US IBD/TIPP Economic Optimism. Actual 53.1
• 13:00 US FOMC Member George Speaks

Wednesday (January 16)

• 2:00 German Final CPI. Estimate 0.1%
• Tentative – German 30-year Bond Auction

*All release times are EST

*Key events are in bold

EUR/USD for Tuesday, January 15, 2019

EUR/USD for January 15 at 6:00 EST

Open: 1.1469 High: 1.1489 Low: 1.1424 Close: 1.1431

EUR/USD Technical

EUR/USD ticked higher in the Asian session and has posted losses in European trade

• 1.1300 is providing support
• 1.1434 was tested earlier in resistance on Tuesday and remains a weak line
• Current range: 1.1300 to 1.1434

Further levels in both directions:

• Below: 1.1300, 1.1212 and 1.1120
• Above: 1.1434, 1.1553, 1.1685 and 1.1803

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