EUR/USD - Euro Subdued At 1.14

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Includes: FXE, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

EUR/USD was closed last week unchanged, and the lack of movement has continued on Monday. In the European session, EUR/USD is trading slightly below the 1.14 line. In the release front, it’s a very quiet start to the week. The sole Eurozone release is Italian Industrial Production, which declined by 0.6%. In the US, there are no economic indicators on the schedule, but the markets will be keeping close tabs on a number of events. US Treasury Secretary Jack Lew will speak at an event in Washington. FOMC member William Dudley will deliver remarks at an event in New York, and the Federal Reserve is expected to release a statement concerning the discount rates to be charged to Federal Reserve Banks.

The ECB released the minutes of its March policy meeting on Thursday, but there was little reaction from EUR/USD. At that meeting, the ECB implemented significant monetary steps, lowering all three of its interest rates and increasing its asset-purchase program (QE) from EUR 60 billion to 80 billion/mth. The main refinancing rate was cut from 0.05% to a flat 0.0%. After the announcement of these measures, Draghi added that he did not anticipate further rate cuts in the near future. This could be a signal that the ECB has given up on trying to stimulate growth through a lower euro by adopting negative rates. What can we expect from the ECB’s policy meeting next week? Draghi could opt to remain on the sidelines, but it should be remembered that he has surprised the markets with monetary moves in the past.

The ECB has pumped some EUR 700 billion into its asset-purchase program, but the results have been disappointing, as the Eurozone continues to grapple with weak growth and inflation levels. The minutes indicated that the ECB Governing Council was broadly unified behind ECB president Mario Draghi, supporting the monetary package which the ECB adopted at the March meeting. The minutes acknowledged the difficult situation of the Eurozone economy, noting that the pace of recovery is expected to remain weak and uncertainties in the global economic environment pose significant risks to the Eurozone. Governing Council members also called for structural reforms, a theme that has often been mentioned by Draghi.

A day after the Federal Reserve published its minutes last week, New York Federal Reserve president William Dudley stated that the Fed must approach future rate hikes with caution. Dudley reiterated Fed chair Yellen’s recent comments that although domestic growth was steady, the US economy remained prone to risks due to turbulent conditions in the global economy. Caution has been the Fed’s theme of late, dampening speculation about an April rate hike, which had been stoked by recent hawkish statements from several Fed officials. The minutes showed strong differences of opinion among policymakers, with some members in favor of an April hike. As well, there was a split amongst members as to whether the recent pickup in inflation was sustainable. Many Fed members were worried about the lack of options available to the Fed since rates remain close to zero. This concern can have significant impact on the currency markets, since the dollar could strengthen if the Fed is unable to implement effective easing measures. What can we expect from the Fed in 2016? A hike in April is highly unlikely, and a move in June will depend on economic indicators, in particular employment and inflation numbers.

EUR/USD Fundamentals

Monday (April 11)

  • 8:00 Italian Industrial Production. Estimate -0.8%. Actual -0.6%
  • 12:30 US Treasury Secretary Jack Lew Speaks
  • 13:25 US FOMC Member William Dudley Speaks
  • Tentative – Federal Reserve Announcement

*Key events are in bold

*All release times are GMT

EUR/USD for Monday, April 11, 2016

EUR/USD April 11 at 8:10 GMT

Open: 1.1405 Low: 1.1371 High: 1.1428 Close: 1.1385

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1172 1.1278 1.1378 1.1495 1.1609 1.1712
Click to enlarge
  • EUR/USD has shown limited movement in the Asian and European sessions
  • 1.1378 was tested in support earlier and remains under pressure
  • 1.1495 is as strong resistance line

Further levels in both directions:

  • Below: 1.1378, 1.1278, 1.1172 and 1.1087
  • Above: 1.1495, 1.1609 and 1.1712
  • Current range: 1.1378 to 1.1495

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged on Monday, consistent with the limited movement shown by EUR/USD. Short positions have a strong majority (66%), indicative of strong trader bias towards EUR/USD moving 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.