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Given the US holidays, markets were quiet following a non-eventful European session where the calendar there too was light of events, of which those that were up for grabs were largely ignored. The EUR/USD sits well above 1.16, having built a nice basing pattern around 1.15 in the last few weeks and could gain altitude if the Fed minutes, due today, take some wind out of the hawkish June policy statement. The US central bank hiked rates by 25 basis points in June, escalated the pace of rate hikes and kept the neutral rate unchanged at 2.9 percent. The USD could pick up a strong bid if the minutes reveal a discussion on the higher neutral rate. Meanwhile, the USD may take a beating if the minutes show a higher degree of inflation tolerance. Further, the minutes are also expected to show a debate the policymakers discussed the impact of a trade war on the US economy, a stronger dollar and a flattening yield curve.
EURUSD Consolidates
Eurozone PMI data were constructive, however; Italian and German service sector activity picked up more than expected in Jun (French data was a little softer but still firm), boosting the Eurozone reading to 55.2 (against 55.0 expected) and helping boost the composite indicator to 54.9 (54.8 expected). The turn up in the PMIs, which had been trending lower since the start of the year, suggests moderating European growth trends are perhaps stabilizing. Spot showed little reaction to the data. The release of final Euro-zone services PMI for June did little to influence the price action but found some support from a report that some ECB members see end-2019 rate hike as too late. Investors in the money markets are fully pricing in a 10 bps rate hike to the deposit rate only in December 2019 but the report lifted the chances of a September move to 80%, from less than 70%, and provided a minor lift to the shared currency.
The uptick lacked any strong conviction, with the pair continuing with its range-bound price action, around mid-1.1600s, through the Asian session on Thursday. Market participants now look forward to the latest FOMC meeting minutes for some fresh clues over the Fed’s monetary policy outlook, which might drive sentiment surrounding the US Dollar and eventually provide some fresh directional impetus. Ahead of the key event risk, the release of ADP report on the US private sector employment, usual initial weekly jobless claims and ISM non-manufacturing PMI might also produce some meaningful trading opportunities. As of writing this article, the EURUSD pair was trading at 1.16881 seeing 0.27% increase in value but the pair remains confined within a broader trading range since the beginning of this week and traders are expected to remain cautious over making new long term bets until the pair makes a breakout in either direction from this broader price band limits.