EURUSD: short reversal break
It was a fundamentally important week for both USD and EUR. Both central banks increased their reference interest rates by 25 bps, which was fully in line with market expectations. However, there are currently important differences when it comes to the current and future economic developments. As inflation in the US is clearly slowing down, the EU cannot say the same. Although inflation figures in the EU are slowing, core inflation remains a huge issue, and there are expectations that ECB would have to further increase interest rates in order to bring the inflation to the targeted levels. On the other hand, investors in the US have increased expectations that Fed might soon stop with further rate increases, considering that inflation is clearly on the down road.
Germany, the most important economy within the Euro Area continues to slow down. Ifo Business Climate for July dropped further to the level of 87.3 from 88.6 posted for the previous month, and below market expectations. Germany`s GfK Consumer Confidence for August has been modestly improved to the level of -24.4, from -25.25 posted in July. GDP growth rate for Germany for Q2 has been a bit better from market expectations, reaching -0.2% y/y, from forecasted -0.3%. Although this might be treated as positive, it is still in the negative territory. Inflation rate in Germany in July reached the level of 6.2% y/y, and modestly decreased from 6.4% posted for June.
The US Consumer Confidence for July has increased above market expectations, reaching a level of 117, from 110.1 posted for the previous month. Durable Goods Orders jumped by 4.7% on a monthly basis in June, significantly beating market expectations of only 1%. GDP growth rate for Q2 was 2.4%, again significantly higher from market estimate of 1.8%. The PCE Price Index was further decreased in June to the level of 3% y/y, from 3.8% posted in May. Michigan Consumer Sentiment Final for July was 71.6, which was modestly under market estimation of 72.6.
Weaknesses in the EU economy are evident, while there is a perception that the US economy is slowly on the road of modest recovery. Since the beginning of the previous week that was also evident in the eurusd market movement. The currency pair started the week at level of 1.1140 and soon broke to the downside, reaching its lowest weekly level at 1.094. Still the pair ended the week at level of 1.1017. RSI crossed the 50 line, ending the week modestly below this level. This is indication that the investors are currently more oriented toward the oversold side. Moving average of 50 days is still modestly diverging from its MA200 counterpart, and still not providing any indication that potential cross might occur anytime soon.
The currency pair ended the week by testing 1.097 short term support line. There is an increased probability that the market will continue the current path toward the oversold side, however, it might take some time in the future until a clear oversold side is reached. In this sense, there is some probability for a short reversal of eursud to the levels above $1.10 resistance line, but still, it should not be expected return to the previous higher levels. Still, there are few important macro data for the EU which would be posted in a week ahead, like Inflation rate and GDP Growth, which should be closely watched.
Important news to watch during the week ahead are:
Euro: Euro Area core Inflation Rate for July, Euro Area GDP Growth Rate for Q2, Germany Unemployment Rate,
USD: ISM Manufacturing PMI for July, ISM services PMI for July, Non-Farm Payrolls and Unemployment Rate for July
Germany, the most important economy within the Euro Area continues to slow down. Ifo Business Climate for July dropped further to the level of 87.3 from 88.6 posted for the previous month, and below market expectations. Germany`s GfK Consumer Confidence for August has been modestly improved to the level of -24.4, from -25.25 posted in July. GDP growth rate for Germany for Q2 has been a bit better from market expectations, reaching -0.2% y/y, from forecasted -0.3%. Although this might be treated as positive, it is still in the negative territory. Inflation rate in Germany in July reached the level of 6.2% y/y, and modestly decreased from 6.4% posted for June.
The US Consumer Confidence for July has increased above market expectations, reaching a level of 117, from 110.1 posted for the previous month. Durable Goods Orders jumped by 4.7% on a monthly basis in June, significantly beating market expectations of only 1%. GDP growth rate for Q2 was 2.4%, again significantly higher from market estimate of 1.8%. The PCE Price Index was further decreased in June to the level of 3% y/y, from 3.8% posted in May. Michigan Consumer Sentiment Final for July was 71.6, which was modestly under market estimation of 72.6.
Weaknesses in the EU economy are evident, while there is a perception that the US economy is slowly on the road of modest recovery. Since the beginning of the previous week that was also evident in the eurusd market movement. The currency pair started the week at level of 1.1140 and soon broke to the downside, reaching its lowest weekly level at 1.094. Still the pair ended the week at level of 1.1017. RSI crossed the 50 line, ending the week modestly below this level. This is indication that the investors are currently more oriented toward the oversold side. Moving average of 50 days is still modestly diverging from its MA200 counterpart, and still not providing any indication that potential cross might occur anytime soon.
The currency pair ended the week by testing 1.097 short term support line. There is an increased probability that the market will continue the current path toward the oversold side, however, it might take some time in the future until a clear oversold side is reached. In this sense, there is some probability for a short reversal of eursud to the levels above $1.10 resistance line, but still, it should not be expected return to the previous higher levels. Still, there are few important macro data for the EU which would be posted in a week ahead, like Inflation rate and GDP Growth, which should be closely watched.
Important news to watch during the week ahead are:
Euro: Euro Area core Inflation Rate for July, Euro Area GDP Growth Rate for Q2, Germany Unemployment Rate,
USD: ISM Manufacturing PMI for July, ISM services PMI for July, Non-Farm Payrolls and Unemployment Rate for July
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