EUR/USD: Euro Punches Above 1.08, Markets Await ECB Rate And QE Decision

The euro has posted gains in the Thursday session, as EUR/USD trades at the 1.08 line. On the release front, the ECB meets to set its benchmark interest rate and whether to extend the bank’s asset-purchase program. In the US, today’s key release is unemployment claims, with the indicator expected to rise to 272 thousand. On Friday, the US will release the UofM Consumer Sentiment Index.

The ECB meets later on Thursday and is expected to maintain interest rates at a record low 0.00%. What will likely be of greater interest is the bank’s quantitative easing program, which is due to end in March. The markets are expecting the ECB to extend QE for another six months. What remains unclear is whether the bank will begin tapering off the amount of QE purchases, which currently stand at EUR 80 billion/month.

Inflation and growth projections for the Eurozone have been revised upwards, so there is room to reduce the monthly purchases, perhaps by EUR 10 billion/month. If the ECB does lower QE purchases, this would mark a form of monetary tightening and the euro could respond with gains. There are rough waters ahead for the Eurozone, which must deal with the fallout of the Italian referendum as well as upcoming negotiations with Britain ahead of its withdrawal from the European Union.

The Federal Reserve meets next week for its monthly policy meeting, the first after Donald Trump’s election as president. The markets have priced a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and market anticipation of a hike has translated into strong gains for the greenback.

It will be interesting to see what happens early next year, with the Trump administration taking over in Washington. Trump has stated that he plans to increase government spending and cut taxes. This could lead to higher inflation levels, which means the Fed may need to adjust its outlook when the new administration’s policies become clearer.

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EUR/USD Fundamentals

Thursday (December 8)

  • 6:30 French Final Nonfarm Payrolls. Estimate 0.3%. Actual 0.3%
  • 12:45 ECB Minimum Bid Rate Estimate 0.00%
  • 13:30 ECB Press Conference
  • 13:30 US Unemployment Claims Estimate 272K
  • 15:30 US Natural Gas Storage Estimate -44B

Friday (December 9)

  • 15:00 US Preliminary UoM Consumer Sentiment. Estimate 94.3

*All release times are GMT

* Key events are in bold

EUR/USD for Thursday, December 8, 2016

EUR/USD Dec 7 – 9 Chart

EUR/USD December 8 at 11:00 GMT

Open: 1.0759 High: 1.0805 Low: 1.0744 Close: 1.0793

EUR/USD Technical

  • EUR/USD was flat in the Asian session and has posted small gains in European trade
  • 1.0708 is providing support
  • 1.0821 is a weak resistance line

Further levels in both directions:

  • Below: 1.0708, 1.0616, 1.0506 and 1.0414
  • Above: 1.0821, 1.0957 and 1.1045
  • Current range: 1.0708 to 1.0821

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Thursday session. Currently, short positions have a majority (58%), indicative of trader bias towards EUR/USD reversing directions and moving lower.

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