EUR/USD – Euro Sinks as Yellen Hints at Rate Hike in Mid-2015

EUR/USD is steady on Thursday, following the euro’s sharp losses following the Federal Reserve statement on Wednesday. In the European session, the pair is trading slightly above the 1.23 line. On the release front, German Ifo Business Climate rose to 105.5 points. Later in the day, the US will release Unemployment Claims and the Philly Fed Manufacturing Index.

The shaky euro took another tumble on Wednesday, courtesy of the Federal Reserve. Previous Fed policy statements have usually stated that the Fed would maintain low rates for a “considerable time”, but the December statement changed terminology, saying the Fed would be “patient” before raising rates. In a follow-press conference, Federal Reserve chair Janet Yellen was less ambiguous, saying that the Fed was unlikely to raise rates for the “next couple of meetings”. The markets took this to mean that a rate hike is in the works, but not before April. The news sent the euro sprawling, as the currency lost about 170 points on Wednesday.

There  was good news out of Germany, the locomotive of the Eurozone. Ifo Business Climate, a key indicator, improved to 105.5 points, up from 104.4 a month earlier. The strong reading was very close to the forecast of 105.4 points. We’ll get a look at consumer confidence on Friday, with the release of GfK German Consumer Climate. The markets are expecting a strong reading of 8.9 points.

Meanwhile, Eurozone inflation remains at low levels, and there were no surprises as Eurozone CPI dipped to 0.3% in November, down from 0.4% a month earlier. Persistent efforts from the ECB have not improved matters, and the danger of deflation has risen with the crash in oil prices. Germany has not been immune to weak inflation, with German Final CPI coming in at a flat 0.0% in November.

EUR/USD for Thursday, December 18, 2014

EUR/USD December 18 at 11:40 GMT

EUR/USD 1.2321 H: 1.2352 L: 1.2279

EUR/USD Technical

• EUR/US was flat Asian session. The euro has edged lower in the European session and tested support at 1.2286.
• 1.2407 has strengthened in resistance after the euro’s sharp losses on Wednesday.
• 1.2286 is a weak support line. Will the pair break below this level during the day? 1.2143 is stronger.
• Current range: 1.2286 to 1.2407

Further levels in both directions:

• Below: 1.2286, 1.2143, 1.2042 and 119.26
• Above: 1.2407, 1.2518, 1.2688, 1.2806 and 1.2930

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions on Thursday, reversing the direction we saw a day earlier. This is not consistent with the pair’s movement, as the euro has posted losses. The ratio has a majority of long positions, indicative of trader bias towards the euro reversing direction and moving to higher ground.

EUR/USD Fundamentals

• 9:00 German Ifo Business Climate. Estimate 105.6 points. Actual 105.5 points.
• Day 1 –  EU Economic Summit.
• Tentative – Spanish 10-year Bond Auction.
• 13:30 US Unemployment Claims. Estimate 297K.
• 14:45 US Flash Services PMI. Estimate 57.1 points.
• 15:00 US Philly Fed Manufacturing Index. Estimate 26.3 points.
• 15:00 US CB Leading Index. Estimate 0.6%.
• 15:30 US Natural Gas Storage. Estimate -61B.

* Key releases are highlighted in bold

*All release times are GMT

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