Euro Rally Stalls, German Unemployment Rolls Plunge

The euro has paused on Wednesday, after four consecutive winning sessions. Currently, EUR/USD is trading at 1.2031, down 0.23% on the day. On the release front, German Unemployment Change in December declined by 29,000, well below the estimate of 13,000. This marked the second-highest decline in 2017. In the US, ISM Manufacturing PMI is expected to inch lower to 58.1 points. Today’s key event is the release of the Fed minutes from the December meeting. On Thursday, Germany and the eurozone release Services PMIs. The US will publish ADP Nonfarm payrolls and unemployment claims.

German indicators for the fourth quarter continue to point upwards. December inflation accelerated to 0.6%, edging above the forecast of 0.5%. The strong gain matched the February reading, equaling the strongest gain recorded in 2017. Unemployment rolls continue to fall, as the labor market continues to remain tight in a robust economy. The numbers are all the more impressive as the political landscape remains uncertain, following inconclusive elections in September. President Angela Merkel is now eyeing the Social Democrats as a coalition partner, but negotiations are moving at a slow pace.

The Federal Reserve will be in the spotlight on Wednesday, with the release of the minutes of the December policy meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25-1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. The economy is expanding at an impressive clip of above 3 percent. If this pace continues, the Fed could raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Despite the rosy economic conditions, inflation has been chronically soft, well below the Fed target of 2 percent. Outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will push up wages and trigger higher inflation, but this is yet to happen.

EUR/USD Fundamentals

Wednesday (January 3)

• 3:00 Spanish Unemployment Change. Estimate -58.7K. Actual -61.5K
• 3:55 German Unemployment Change. Estimate -13K. Actual -29K
• 10:00 US ISM Manufacturing PMI. Estimate 58.1
• 10:00 US Construction Spending. Estimate 0.6%
• 10:00 US ISM Manufacturing Prices. Estimate 64.8
• All Day – US Total Vehicle Sales. Estimate 17.5M
• 14:00 US FOMC Meeting Minutes

Thursday (January 4)

• 3:55 German Final Services PMI. Estimate 55.8
• 4:00 Eurozone Final Services PMI. Estimate 56.5
• 8:15 US ADP Nonfarm Employment Change. Estimate 191K
• 8:30 US Unemployment Claims. Estimate 241K

*All release times are GMT

*Key events are in bold

EUR/USD for Wednesday, January 3, 2018

EUR/USD for January 3 at 5:25 EDT

Open: 1.2058 High: 1.2066 Low: 1.2029 Close: 1.2031

EUR/USD Technical

EUR/USD showed limited movement in the Asian session and has edged lower in European trade

• 1.1961 is providing support
• 1.2092 is the next resistance line

Further levels in both directions:

• Below: 1.1961, 1.1876, 1.1777 and 1.1657
• Above: 1.2092, 1.2221 and 1.2357
• Current range: 1.1961 to 1.2092

OANDA’s Open Positions Ratio

In the Wednesday session, EUR/USD ratio is almost unchanged. Currently, short positions have a majority (67%), indicative of EUR/USD continuing to move downwards.

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.