Euro Steady, US Housing Next

EUR/USD is quiet on Friday, as the pair trades at 1.1250. The pair showed strong volatility in the Thursday session, although the pair closed the day almost unchanged. In economic news, it’s a quiet day as we wrap up the trading week. Eurozone Current Account jumped to EUR 36.2 billion, well above expectations. EU financial ministers will meet in Brussels, with next week’s Brexit referendum one of the key topics on the agenda. In the US, today’s key event is Building Permits, with the markets expecting the indicator to improve to 1.15 million. As well, Housing Starts will also be released.

The Brexit referendum is less than a week away, and with a slew of polls indicating that the outcome very much in doubt, both the pound and the euro showed strong volatility on Thursday. This trend could continue next week as we approach the vote on Thursday. The referendum on whether the UK will remain in the European Union has ramifications for the global economy, and key figures are weighing in on the repercussions if the UK votes to exit the EU. British Prime Minister David Cameron, Germany chancellor Angela Merkel and International Monetary Fund managing director Christine Lagarde have warned that a British departure could hurt the global economy. Federal Reserve Chair Janet Yellen has also weighed in, stating on Wednesday that the Brexit vote was a factor in the Fed holding rates at its policy meeting. The shocking murder of a British MP on Thursday suspended campaigning, and the IMF has delayed releasing a report which apparently is in favor of the UK remaining in the EU. In order to head off any financial instability if the “Leave Camp” wins, the ECB and BoE are expected to immediately announce their commitment to supporting the financial markets and maintaining adequate market liquidity. This would involve opening “swap lines” between the ECB and the BoE, so as to provide unlimited funding, in both euros and pounds, to European banks. Clearly, the EU is extremely concerned about the vote, and it will be interesting to see if EU financial ministers release a statement concerning Brexit after today’s meeting in Brussels.

US inflation and employment numbers were unimpressive on Thursday. Core CPI and CPI, the primary gauges of consumer inflation, both posted small gains of 0.2%, within expectations. The Federal Reserve continues to insist that inflation will head towards its target of 2.0 percent, but given current inflation levels are not much above zero, it’s hard to see this happening, absent a huge surge by the US economy. Meanwhile, Unemployment Claims increased to 277 thousand, above the estimate of 267 thousand. This marked a four-week high, and once again raises questions about the strength of the US labor market. The employment picture appeared to be very bright in early 2016, but the Nonfarm Payrolls report of just 38 thousand in May shocked the markets and could delay a rate hike by the Federal Reserve.

As widely expected, the Federal Reserve opted for the sidelines at its policy meeting and held the benchmark rate at 0.25%, where it has been pegged since December 2015. A dismal Nonfarm Payrolls report and dovish statements from Fed chair Janet Yellen and her colleagues had all but decimated any chance of a June hike. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in “the coming months”. The Fed’s tone has drastically changed since then, and there is a strong likelihood that the Fed will raise rates only once in 2016. The Fed statement did not shed any light on the timing of a rate hike, although many analysts are circling September in their calendars. The statement was cautious in tone, stating that the Fed expects US inflation levels to remain at low levels in the near term. As well, the Fed lowered its rate path outlook for 2016 and 2017. Gone are the heady days in December, when the Fed hinted that it could raise rates up to four times in 2016. Many analysts were skeptical about this rosy prediction, and it appears that the Fed was overly optimistic about the strength of the US economy. This “lack of sync” between the Fed and the markets regarding the US economy could hurt the credibility of the Fed, although to her credit, Yellen has made strong efforts to communicate clearly with the markets, in sharp contrast to the undecipherable “Fedspeak”, perfected by former Fed chair Allan Greenspan.

EUR/USD Fundamentals

Friday (June 17)

  • 8:00 Eurozone Current Account. Estimate 24.7B. Actual 36.2B
  • 8:00 Italian Trade Balance. Estimate 5.95B. Actual 4.52B
  • All Day – ECOFIN Meetings
  • 12:30 US Building Permits. Estimate 1.15M
  • 12:30 US Housing Starts. Estimate 1.15M
  • 15:00 ECB President Mario Draghi Speaks

* Key releases are in bold

*All release times are GMT

EUR/USD for Friday, June 17, 2016


EUR/USD June 17 at 8:40 GMT

Open: 1.1271 Low: 1.1272 High: 1.1221 Close: 1.1255

EUR/USD Technicals

  • EUR/USD has been choppy in the Asian and European sessions, but has shown little net movement
  • There is weak resistance at 1.1278. This line could be tested during the Friday session
  • 1.1150 is providing strong support

Further levels in both directions:

  • Below: 1.1150, 1.1054 and 1.0909
  • Above: 1.1278, 1.1376, 1.1495 and 1.1638
  • Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Friday, consistent with the lack of movement from EUR/USD. Short positions have a majority (58%), indicative of trader bias towards EUR/USD continuing to move to lower ground.

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