EUR/USD – Euro Drifting Continues in Thinned Holiday Trade, Fed Minutes Disappoint

The euro is showing little movement in the Thursday session, and with German and French banks closed for a holiday, this trend will likely continue throughout the day. Currently, EUR/USD is trading just above the 1.12 level. On the release front, OPEC members are meeting in Vienna, and the US releases unemployment claims, with the indicator expected to rise to 238 thousand.

The much-anticipated Fed minutes were released on Wednesday, but traders hoping for confirmation of a June rate hike came away disappointed, as the minutes conveyed a less hawkish tone than the markets had expected. Policymakers were careful in their message, saying that a rate hike was coming “soon”. Does that mean a move at the June policy meeting? The markets believe so, as Fed funds futures for a June hike remained at 78% after the minutes were released. At the same time, the Fed has given itself some wiggle room, and could opt to delay a hike until the second quarter if inflation or consumer indicators take an unexpected nosedive. The minutes stated that policymakers wanted to see additional evidence that the recent slowdown in the economy was temporary before raising rates. As for additional hikes in 2017, the markets remain skeptical. The odds for a September rate stand at just 37%. This pessimism is a result of a weak performance from the US economy in Q1, as well as doubts that President Trump, who is facing congressional investigations over his connections with the Russian government, will be able to pass his agenda of cutting taxes and government spending. Gone are the heady days at the end of 2016, when a red-hot US economy had analysts predicting four rate hikes in 2017. At the same time, a strong improvement in economic data could quickly change the cautious tone of the Fed and revive discussion of four rate hikes this year.

The US dollar struggles post Fed minutes

Where are the hawks?

Earlier in the week, the White House presented President Trump’s 2018 budget proposal to lawmakers in Congress. Trump has promised to slash government spending, and much of the funds for the budget would come from huge cuts to the Medicaid health program and food stamps. The budget proposes slashing more than $600 billion from Medicaid and over $192 billion from food stamps over a decade. Trump has promised to balance the budget within 10 years, claiming this can be achieved through tax cuts and annual growth of 3 percent. However, experts are at odds as to whether the economy can reach and maintain such levels of growth, which is much higher than current economic expansion. The budget proposal is unlikely to remain in its present form for very long on Capitol Hill. Democrats will want nothing to do with it, and Republicans will not want to make drastic cuts to federal programs that will incur the wrath of voters. Still, the Trump administration, which has been in damage-control mode for weeks over the firing of FBI director James Comey, can point to the budget as a step forward in trying to implement Trump’s pro-business agenda.

EUR/USD Fundamentals

Thursday (May 25)

  • All Day – OPEC Meetings
  • 8:30 US Unemployment Claims. Estimate 238K

Friday (May 26)

  • Day 1 – G7 Meetings
  • 8:30 US Core Durable Goods Orders. Estimate 0.4%
  • 8:30 US Preliminary GDP. Estimate 0.9%
  • 10:00 US Revised UoM Consumer Sentiment. Estimate 97.6

*All release times are EDT

*Key events are in bold

EUR/USD for Thursday, May 25, 2017

EUR/USD Thursday, May 25 at 6:30 EDT

Open: 1.1219 High: 1.1250 Low: 1.1209 Close: 1.1216

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0873 1.0985 1.1122 1.1242 1.1366 1.1465

EUR/USD was flat in the Asian session. In European trade, the pair edged higher but has since retracted

  • 1.1122 is providing support
  • 1.1242 was tested earlier in resistance and is a weak line

Further levels in both directions:

  • Below: 1.1122, 1.0985 and 1.0873
  • Above: 1.1242, 1.1366, 1.1465 and 1.1534
  • Current range: 1.1122 to 1.1242

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged in the Thursday session. Currently, short positions have a majority (69%), 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

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.