EUR/USD – Euro Under Pressure as Brexit Aftershocks Continue

EUR/USD is showing little movement on Wednesday, following losses in the Tuesday session. The pair is trading at 1.1060. On the release front, German Factory Orders disappointed with a flat reading of 0.0%, shy of the estimate of 1.0%. The US will release ISM Non-Manufacturing PMI, with the estimate standing at 53.3 points. The spotlight will be on the central banks, as ECB President Mario Draghi addresses an ECB event in Frankfurt, while the Federal Reserve will release the minutes of its June policy meeting. On Thursday, employment numbers will be in focus, with the release of ADP Nonfarm Employment Change and Unemployment Claims.

The Brexit vote in late June continues to preoccupy the markets, and the Federal Reserve and US monetary policy have understandably taken a back seat. The Fed will be back on center stage later on Wednesday, as the Fed releases the minutes of its June policy meeting, which was held just one week before the Brexit vote. Fed Chair Janet Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again on July 27.

Britain may have voted “Out”, but there is no timetable as to when the exit will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU, Britain finds itself in limbo (“neither in nor out”), and the lack of clarity regarding Britain’s exit from the EU will likely translate into continuing volatility in the currency markets.

EUR/USD Fundamentals

Wednesday (July 6)

  • 6:00 German Factory Orders. Estimate 1.0%. Actual 0.0%
  • 7:00 ECB President Mario Draghi Speaks
  • 8:10 Eurozone Retail PMI. Actual 48.5 
  • 12:30 US Trade Balance. Estimate -40.0B
  • 13:00 US FOMC Daniel Tarullo Speaks
  • 13:45 US Final Services PMI. Estimate 51.5
  • 14:00 US ISM Non-Manufacturing PMI. Estimate 53.3
  • 18:00 US FOMC Meeting Minutes

Updated Key Events

Thursday (July 7)

  • 12:15 US ADP Nonfarm Employment Change. Estimate 158K
  • 12:30 US Unemployment Claims. Estimate 269K

* Key releases are in bold

*All release times are GMT

EUR/USD for Wednesday, July 6, 2016

EUR/USD July 6 at 10:00 GMT

Open: 1.1063 Low: 1.1034 High: 1.1079 Close: 1.1057

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0821 1.0925 1.1054 1.1150 1.1278 1.1376
  • EUR/USD posted small losses in the Asian session and has recovered in European trade
  • 1.1150 has strengthened in resistance following strong losses by EUR/USD in the Tuesday session
  • 1.1054 was tested in support earlier and is a weak line

Further levels in both directions:

  • Below: 1.1054, 1.092 and 1.0821
  • Above: 1.1150, 1.1278, 1.1376 and 1.1495
  • Current range: 1.1054 to 1.1150

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged Wednesday, consistent with the lack of movement from EUR/USD. Short positions have a majority (60%), indicative of trader bias towards EUR/USD breaking out 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.