EUR/USD – Euro Shrugs Off Strong Eurozone Inflation and GDP Data

EUR/USD is almost unchanged in the Tuesday session. Currently, the pair is trading at the 1.07 line. On the release front, it’s a busy day. In the Eurozone, CPI Flash Estimate gained 1.8%, above the estimate of 1.5%. Preliminary Flash GDP improved to 0.5%, edging above the forecast of 0.4%. The unemployment rate dropped to 9.6%, compared to an estimate of 9.8%. The news was not as good from German Retail Sales, which declined 0.9%, nowhere near the forecast of +0.6%. Later in the day, ECB President Mario Draghi delivers remarks at a conference of the ECB and the European Commission. In the US, today’s key event is CB Consumer Confidence, with the markets expecting a strong reading of 112.8 points. On Wednesday, the Federal Reserve will set the benchmark interest rate, which is expected to remain pegged at 0.50%.

Germany’s economy continues to raise concerns, as consumer indicators have looked dismal this week. German Retail Sales, the primary gauge of consumer spending, posted a sharp decline of 0.9%, its fourth decline in five readings. This reading comes on the heels of Preliminary CPI, which declined 0.6%, its first decline in 9 months. However, there was good news from the job front, as unemployment claims dropped by 26 thousand, much better than expected.

Analysts expected the US economy to soften in the fourth quarter, and GDP fell a bit short of the forecast. The economy expanded 1.9%, shy of the estimate of 2.1%. Business investment and consumer spending remains solid and should continue into 2017. However, Trump’s protectionist rhetoric and action, which saw tensions escalate with Mexico last week, could cloud the bright picture for the US economy.

Donald Trump continues to stir controversy, after signing a host of executive orders last week which have been condemned both domestically and abroad. Trump has withdrawn from the Trans-Pacific Partnership and declared he will reopen the NAFTA trade agreement with Canada and Mexico. He has also ordered work to begin on a wall with Mexico and banned immigrants from seven Moslem countries. Trump’s unconventional and disjointed approach to international politics and trade could have major ramifications on global trade and could lead to financial instability in global markets, triggering volatility in the currency markets. Just a few days before being sworn in as president, Trump stated that the US dollar was “too strong”, blaming a weak Chinese currency. Predictably, the greenback lost ground after Trump’s remarks. It’s a safe bet that Trump’s offhand tweets and comments will continue to fuel market volatility.

Geopolitical and Trade Risks Dominate Market Moves

European Annual Inflation Reached 1.8% in January

Fed Expected to Keep Rates on Hold Awaiting Trump Plan

Tuesday (January 31)

  • 1:30 French Preliminary GDP. Estimate 0.4%. Actual 0.4%
  • 2:00 German Retail Sales. Estimate 0.6%. Actual -0.9%
  • 2:45 French Consumer Spending. Estimate 0.2%. Actual -0.8%
  • 2:45 French Preliminary CPI. Estimate -0.5%. Actual -0.2%
  • 3:00 ECB President Mario Draghi Speech
  • 3:00 Eurozone Spanish Flash CPI. Estimate 2.4%. Actual 3.0%
  • 3:55 German Unemployment Change. Estimate -5K. Actual -26K
  • 4:00 Italian Monthly Unemployment Rate. Estimate 11.8%. Actual 12.0%
  • 5:00 Eurozone CPI Flash Estimate. Estimate 1.5%. Actual 1.8%
  • 5:00 Eurozone Core CPI Flash Estimate. Estimate 0.9%. Actual 0.9%
  • 5:00 Eurozone Preliminary Flash GDP. Estimate 0.4%. Actual 0.5%
  • 5:00 Eurozone Unemployment Rate. Estimate 9.8%. Actual 9.6%
  • 8:30 Eurozone Employment Cost Index. Estimate 0.6%
  • 9:00 US S&P/CS Composite-20 HPI. Estimate 5.0%
  • 9:45 US Chicago PMI. Estimate 55.1
  • 10:00 US CB Consumer Confidence. Estimate 112.6

Upcoming Key Releases

Wednesday (February 1)

  • 8:15 US ADP Nonfarm Employment Change. Estimate 165K
  • 10:00 US ISM Manufacturing PMI. Estimate 55.0
  • 14:00 US FOMC Statement
  • 14:00 US Federal Funds Rates. Estimate <0.75%

*All release times are EST

*Key events are in bold

EUR/USD for Tuesday, January 31, 2017

EUR/USD January 31 at 6:20 EST

Open: 1.0707 High: 1.0725 Low: 1.0683 Close: 1.0704

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0414 1.0506 1.0616 1.0708 1.0873 1.0985

EUR/USD has shown little movement in the European and Asian sessions

  • 1.0616 is providing support
  •  1.0708 was tested earlier in resistance and is a weak line

Further levels in both directions:

  • Below: 1.0616, 1.0506 and 1.0414
  • Above: 1.0708, 1.0873, 1.0985 and 1.1114
  • Current range: 1.0616 to 1.0708

OANDA’s Open Positions Ratio

EUR/USD ratio is showing slight gains in short positions. Currently, short positions have a majority (57%), indicative of trader bias towards EUR/USD breaking out and heading to lower levels.

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.