EUR/USD – Euro Unchanged, Markets Eye German CPI

The euro is unchanged on Wednesday, following gains in the Tuesday session. EUR/USD is trading at 1.1060. In Brussels, EU leaders are meeting for a second day, with the Brexit referendum high on the agenda. German Consumer Climate improved to 10.8 points, within expectations. Later in the day, Germany will release Preliminary CPI, with the markets expecting a small gain of 0.1%. It’s a busy day in the US, highlighted by Pending Home Sales. After a sharp gain in April, the estimate for June stands at -0.9%. On Thursday, we’ll get a look at Eurozone CPI and US Unemployment Claims.

In the US, GDP was revised upwards in the first quarter. Final GDP for the first quarter posted a gain of 1.1%, above the estimate of 1.0%. This reading was stronger than the Preliminary GDP reading of 0.8%. Although the upward revision was welcome news, the revised GDP report marked the weakest gain in a year. On the consumer front, CB Consumer Confidence impressed by climbing to 98.0 points, easily beating the forecast of 93.2 points. Is US consumer confidence strengthening? It’s not clear, as last week’s UoM Consumer Sentiment report dropped to 93.4 points and missed expectations. Consumer confidence is closely linked to consumer spending, and we’ll get a look at Personal Spending later on Wednesday.

The aftershocks of the Brexit vote continuing to reverberate in the Britain and Europe, but the dust has begun to settle, as markets have stabilized and the British pound is steady. Political leaders on both sides of the Channel will have to pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without Britain. The vote to leave the EU, which stunned the markets and the public, has caused deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. The currency and commodity markets have been volatile, as the pound and plunged, while gold has surged higher. Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Charney have sought to reassure the markets and the public that the situation is under control, but is it? The political picture is fluid, as the Conservatives must choose a new leader, the Labor Party is in turmoil and general elections are likely later in the year. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders can expect further volatility in the currency markets.

British Prime Minister Cameron, a staunch supporter of the EU, finds himself in the unenviable position of explaining the Brexit decision to fuming Europeans. Cameron arrived in Brussels for an EU Summit on Tuesday and the meeting was fraught with tension, dismay and anger. Clearly, the “divorce of the “century” between Britain and the EU could be rancorous and messy. Cameron has asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible, in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande went on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt.

Brexit has ushered in a period of instability and uncertainty across the continent, with Brexit seemingly the only certainty one can point to. On the EU side, the bloc has plenty of new headaches, as it must deal not only with the British exit but also from rejuvenated Euro-skeptics across Europe. The Brexit vote is likely to renew debate about EU membership in countries like the Netherlands and Denmark. Even in France, a staunch member of the club, EU membership could be revisited, as Jean-Marie Le Pen, head of the Front National party, has called for an EU referendum in France. The EU is under a real threat of destabilization and will have to figure out how to deal with the tremendous challenges suddenly brought on by Brexit. Whatever the exit arrangement is reached with Britain, the EU may well have to undergo significant reform, otherwise, the whole enterprise could disintegrate. This mean the euro is vulnerable and is likely to remain under pressure for some time.

EUR/USD Fundamentals

Wednesday (June 29)

• 6:00 GfK German Consumer Climate. Estimate 9.8. Actual 10.1
• All Day – German Preliminary CPI. Estimate 0.1%
• 7:00 Spanish Flash CPI. Estimate -1.0%. Actual -0.8%
• Day 2 – EU Economic Summit
• 12:30 US Core PCE Price Index. Estimate 0.2%
• 12:30 US Personal Spending. Estimate 0.4%
• 12:30 US Personal Income. Estimate 0.3%
• 14:00 US Pending Home Sales. Estimate -0.9%
• 14:30 US Crude Oil Inventories. Estimate -2.3M
• 20:30 US Bank Stress Test Results

Upcoming Key Events

Thursday (June 30)

• 6:00 German Retail Sales. Estimate 0.7%
• 9:00 Eurozone CPI Flash Estimate. Estimate 0.0%
• 12:30 US Unemployment Claims. Estimate 267K

* Key releases are in bold

*All release times are GMT

EUR/USD for Wednesday, June 29, 2016

EUR/USD June 29 at 9:50 GMT

Open: 1.1076 Low: 1.1048 High: 1.1103 Close: 1.1065

EUR/USD Technical

• EUR/USD has been flat in Asian and European trade
• 1.1050 was tested earlier in support. It remains fluid and could see further action during the day
• There is resistance at 1.1150

Further levels in both directions:

• Below:1.1054, 1.0925, 1.0821 and 1.0713
• Above: 1.1150, 1.1278 and 1.1376
• Current range: 1.1054 to 1.1150

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Wednesday, consistent with the lack of movement from EUR/USD. Short positions have a majority (59%), indicative of trader bias towards EUR/USD breaking out and moving lower.

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