By Kenny Fisher
EUR/USD is showing limited movement on Tuesday, as the pair trades just above the 1.09 line in the European session. On the release front, German Unemployment Change dropped sharply, coming in at -20 thousand. Eurozone Unemployment Rate was steady at 10.4%, but Eurozone PPI posted a sharp drop of -0.8%. It’s a quiet day in the US, with no major releases on the schedule.
Eurozone inflation has posted mixed numbers this week. PPI dipped to 0.8%, short of the forecast of -0.4% and its lowest level in four months. There was better news at the start of the week, as Eurozone CPI improved to 0.4%, its strongest gain since September 2014. Core CPI edged up to 1.0%, ahead of the forecast of 0.9%. Despite these stronger numbers, the euro failed to gain any ground, as the markets remain pessimistic about the inflation picture.
Weak oil prices may be a boon for consumers, but threaten to push inflation levels into negative territory, and deflation could pose a serious problem. The ECB is expected to announce major monetary moves at its March meeting, which would mark a significant departure from the lack of action we’ve become accustomed to from Draghi & Co. Analysts expect a reduction of the benchmark rate by 10 basis points, and the QE purchasing program could be raised from 60 billion euros to 80 billion euros/mth. If the ECB does make a monetary move, traders can expect the euro to soften.
With the Federal Reserve staying on the sidelines last month and not raising rates, market speculation has now shifted to the March meeting. Will we see another rate at that time? The Fed probably cannot answer this question just yet, so the markets will have to show some patience. The inflation picture remains problematic, with the Fed saying that inflation levels will remain low, and may not reach the target of 2.0% until 2018. Given these Fed’s continuing concerns about a lack of inflation, it’s hard to foresee another rate hike in March absent a strong improvement in key US indicators.
The manufacturing sector is another weak spot in the US economy, and this was underscored last week, as the December reports for durables were dismal. Durable Goods dropped 1.2%, while Core Durables plunged 5.1%, its weakest showing since August 2014. These poor numbers underscore ongoing weakness in the US manufacturing sector, which has not improved despite positive economic conditions. There was more disappointing news on the housing front last week, as Pending Home Sales posted a negligible gain of 0.1%, well off the estimate of 1.0%.
Tuesday (Feb. 2)
- 3:00 Spanish Unemployment Change. Estimate 71.2K. Actual 57.2K.
- 3:55 German Unemployment Change. Estimate -7K. Actual -20K.
- 4:00 Italian Monthly Unemployment Rate. Estimate 11.2%. Actual 11.4%.
- 5:00 Eurozone Unemployment Rate. Estimate 10.5%. Actual 10.4%.
- 5:00 Eurozone PPI. Estimate -0.4%. Actual -0.8%.
- 10:00 US IBD/TIPP Economic Optimism. Estimate 47.8 points.
- All Day – US Total Vehicle Sales. Estimate 17.4M.
- 13:00 US FOMC Member Esther George Speaks.
*Key events are in bold
*All release times are EST
EUR/USD for Tuesday, February 2, 2016
EUR/USD February 2 at 6:05 EST
Open: 1.0895 Low: 1.0892 High: 1.0920 Close: 1.0911
- EUR/USD has been marked by limited in the Asian and European sessions.
- 1.0847 continues to provide support.
- There is weak resistance at 1.0941.
- Current range: 1.0847 to 1.0941.
Further levels in both directions:
- Below: 1.0847, 1.0732, 1.0659 and 1.0537
- Above: 1.0941, 1.1087 and 1.1172
OANDA’s Open Positions Ratio
EUR/USD has reversed positions and shown movement towards short positions. Short positions have a strong majority of positions (60%). This points to trader bias towards the euro heading 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.