EUR/USD – Euro Under Pressure as Yellen Revives Rate Hike Speculation

The euro is showing little movement on Monday, as EUR/USD trades just below the 1.12 line. It’s a light day on the release front, with no Eurozone events. The US will release the Core PCE Price Index and Personal Spending. On Tuesday, Germany releases Preliminary CPI and the US will release CB Consumer Confidence.

The euro stayed close to the 1.13 for most of last week, but dropped 100 points on Friday. The sharp drop was in response to Janet Yellen’s highly-anticipated speech on Friday at the Jackson Hole meeting of central bankers. The Fed chair was crystal clear in her remarks, saying the case for a rate increase had “strengthened in recent months”. Yellen noted that the economy was close to maximum employment, inflation was steady, and consumer spending remained solid. At the same time, Yellen did not provide any timeline on a rate hike nor did she spell out what the Fed wants to see before pressing the rate trigger. On Friday, Fed members Dennis Lockhart and Stanley Fischer both came out in favor of two rate hikes in 2016, and these comments helped the dollar record broad gains on Friday. Although the Fed has revived the possibility of a September hike, a December move is considered much more likely, with odds as high as 65% according to Goldman Sachs.

Germany is the Eurozone’s largest economy, and German indicators often act as bellwethers of the strength of the Eurozone economy. Recent numbers are showing softness in the second quarter compared to Q1, as Brexit aftershocks are taking a toll on a fragile Eurozone economy. German Ifo Business Climate dropped to 106.2 points in the August report, its lowest level in six months. More significantly, the decline from 108.6 points in July marked the indicator’s largest drop since May 2012. The weak reading underscores concerns that European businesses are taking a “wait and see” attitude after the Brexit referendum, as Britain and Europe must begin the long and arduous negotiations process of Britain’s departure from the EU. Although the German economy expanded in the second quarter, it failed to keep up with the first quarter’s pace. Final GDP climbed 0.4%, within expectations but well behind the first quarter gain of 0.7%. Domestic consumption continues to power the economy, with low inflation and zero interest rates helping to spur consumer spending.

EUR/USD Fundamentals

Monday (August 29)

  • 12:30 US Core PCE Price Index. Estimate 0.1%
  • 12:30 US Personal Spending. Estimate 0.3%
  • 12:30 US Personal Income. Estimate 0.4%

Tuesday (August 30)

  • All Day – German Preliminary CPI. Estimate 0.1%
  • 14:00 US CB Consumer Confidence. Estimate 97.2

*All release times are EDT

* Key events are in bold

EUR/USD for Monday, August 29, 2016

EUR/USD August 29 at 10:25 GMT

Open: 1.1197 High: 1.1208 Low: 1.1169 Close: 1.1184

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0957 1.1054 1.1150 1.1278 1.1376 1.1467
  • EUR/USD was flat in the Asian session and has posted small losses in European trade
  •  1.1278 switched to a resistance role after sharp losses by EUR/USD in the Friday session
  • 1.1150 is a weak support line

Further levels in both directions:

  • Below: 1.1150, 1.1054 and 1.0957
  • Above: 1.1278, 1.1376, 1.1467 and 1.1534
  • Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio showed strong gains in long positions following sharp losses by EUR/USD in the Friday session. Currently, short positions have a majority (57%), indicative of trader bias towards EUR/USD breaking out and resuming its upward movement.

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.