By Kenny Fisher
The euro remains subdued in the Wednesday session, as EUR/USD trades at 1.0440. The markets are likely to remain listless for the remainder of the week, as many investors have closed books prior to the end of the year, resulting in thin liquidity in the market. There are no European releases on the schedule, and the sole US event is Pending Home Sales. The indicator is expected to jump to 0.6%. On Thursday, the US will release unemployment claims, with the estimate standing at 277 thousand.
The markets may be in low gear during the week between Christmas and New Year’s, but on the European banking front, things are anything but calm. On Friday, the Italian government agreed to bail out Monte dei Paschi, one of Italy’s largest banks, after the bank failed to raise EUR 5 billion from investors. However, the ECB has now said that the capital shortfall is much higher, to the tune of EUR 8.8 billion. The ECB tried to calm down nervous markets, saying that the bank remains solvent, while acknowledging that the bank’s liquidity position had rapidly deteriorated. Will other European banks require bailouts as well? In September, the German government was debating whether to bailout giant Deutsche Bank. At that time, Tidjane Thiam, chief executive of Credit Suisse bluntly warned that the European banking sector were in a precarious situation and “not really investable”. If the banking sector continues to struggle, investor confidence in the Eurozone will be shaken and the euro could head lower.
As 2016 wraps up, US consumers are brimming with confidence, in what analysts are describing as a post-election surge in optimism. The CB Consumer Confidence report surged in December to 113.7, its highest level since August 2001. This reading comes on the heels of UoM Consumer Sentiment, which climbed to a 12-year high, with a reading of 93.8 points. Clearly, consumers are optimistic that the economy will continue to improve under Donald Trump. Both of these well-respected surveys found that consumers are confident that continuing economic growth will create new jobs and raise incomes. Trump’s economic platform remains short on details, but he has promised to cut taxes while increasing public spending. If Trump manages to implement both of these goals, the US economy could heat up and also help global growth pick up speed. In late November, the OECD revised upwards its 2017 growth projections for the US from 2.1% to 2.3%.
The US economy continues to expand at a brisk clip, as underscored by the most recent revision to third quarter GDP. The Final GDP reading of 3.5% beat the estimate of 3.3%. This figure marked an upward revision of the previous GDP estimate of 3.2%. The stellar reading can be attributed to stronger consumer spending and an increase in business investment, and marked the strongest growth rate since the third quarter of 2015. With consumer confidence at high levels and the labor market close to capacity, fourth quarter GDP readings could follow suit with strong numbers.
Wednesday (December 28)
- 15:00 US Pending Home Sales. Estimate 0.6%
Thursday (December 29)
13:30 US Unemployment Claims. Estimate 277K
*All release times are GMT
* Key events are in bold
EUR/USD for Wednesday, December 28, 2016
EUR/USD December 27 at 10:30 GMT
Open: 1.0461 High: 1.0480 Low: 1.0434 Close: 1.0439
- EUR/USD posted small gains in the Asian session but has reversed directions in the European session
- 1.0414 is providing weak support
- 1.0506 is the next resistance line
Further levels in both directions:
- Below: 1.0414, 1.0287, 1.0170 and 1.0028
- Above: 1.0506, 1.0616 and 1.0708
- Current range: 1.0414 to 1.0506
OANDA’s Open Positions Ratio
EUR/USD ratio continues to show little movement this week. Currently, long positions have a majority (55%), indicative of trader bias towards EUR/USD reversing directions and moving upwards.