EUR/USD Mid-Session Technical Analysis for July 28, 2021

The Euro is trading lower on Wednesday against the U.S. Dollar, but the early inside move suggests investor indecision and impending volatility with investors refraining from placing major bets ahead of the outcome of a U.S. Federal Reserve meeting.

The Fed is due to release its monetary policy statement at 18:00 GMT, followed shortly by a press conference by Federal Reserve Chairman Jerome Powell. Investors are hoping the Federal Open Market Committee (FOMC) provides clues as to the timing of tapering its current bond stimulus purchases amid surging U.S. inflation.

At 12:22 GMT, the EUR/USD is trading 1.1804, down 0.0011 or -0.09%.

Ahead of the Fed, the market is split over whether the Fed will make any major policy shifts at this meeting. Some believe policymakers may be willing to wait until after the next U.S. Non-Farm Payrolls report (August 6) and the July CPI report due to be released on August 11. If this is the case, then look for the Fed to make the announcement at the central bankers’ summit at Jackson Hole, Wyoming in mid-August.

The ECB last Thursday struck a dovish tone with investors, driving the Euro lower before profit-taking and position-squaring helped put in a short-term bottom. Some traders feel that a hawkish Fed could trigger a resumption of the selling pressure on the single-currency.

Daily EURUSD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum has shifted to the upside. A trade through 1.1881 will change the main trend to up, while a move through 1.1752 will signal a resumption of the downtrend.

The minor trend is up. This is controlling the momentum. A trade through 1.1755 will change the minor trend to down. Taking out 1.1841 will indicate the buying is getting stronger with the minor top at 1.1851 the next likely target.

The minor range is 1.1752 to 1.1841. Its 50% level or pivot at 1.1797 is currently being tested.

The short-term range is 1.1881 to 1.1752. Its 50% level at 1.1817 helped stop today’s early rally.

The main range is 1.1975 to 1.1752. Its retracement zone at 1.1864 to 1.1890 is the primary upside target and last potential resistance area before the main trend changes to up.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Wednesday is likely to be determined by trader reaction to 1.1797.

Bearish Scenario

A sustained move under 1.1797 will indicate the presence of sellers. If this move generates enough downside momentum then look for a drive into the minor bottom at 1.1755, followed by the main bottom at 1.1752. If the latter fails as support then look for the selling to possibly extend into thee March 31 main bottom at 1.1704.

Bullish Scenario

A sustained move over 1.1797 will signal the presence of buyers. At this point a labored rally could develop with the first two upside targets 1.1817 and 1.1841. Taking out the later should trigger a further rally into 1.1851 and 1.1864. Sellers are likely to come in again at this point, defending the main top at 1.1881.

For a look at all of today’s economic events, check out our economic calendar.

Fed Day

The China-inspired losses saw the MSCI Asia Pacific Index fall to new lows for the year today, though Hong Kong’s Hang Seng posted a 1.3% gain. Europe’s Dow Jones Stoxx 600 is posting the first gain of the week, led by information technology, real estate, and consumer discretionary. Despite strong bank earnings, financials are matching the market, not outperforming it. US futures are oscillating around little changed levels.

The US 10-year benchmark yield is firm at 1.25%, while European yields are mostly slightly softer but sufficient to take German, French, Dutch, and Greek yields to new 3-4 month lows. The Antipodean currencies and yen are the heaviest against the US dollar, with the Canadian dollar the only major currency gaining on the greenback through the European morning. Emerging market currencies are mixed, leaving the JP Morgan EM FX index little changed.

The Chinese yuan gained for the first time in five sessions. API estimated a 4.7 mln barrel drop in US oil stocks and a large (6.2 mln barrel) drawdown in gasoline inventories, which, if confirmed, would be the largest since March. September WTI is around 1% higher today. Gold continues to move broadly sideways and is straddling the $1800-level today.

Iron ore and steel rebar futures fell in Shanghai, while copper is recovering from yesterday’s decline, which snapped a five-day advance. September lumber dropped 6.7% yesterday to bring this week’s decline to about 8.3% after jumping 18% last week on Canada’s wildfires. The CRB Index fell 0.6% yesterday to end is five-day, 6.8% advance.

Asia Pacific

Investors are continuing to try to make sense of Beijing’s aggressive moves that appear to be a broad offensive that can only result in a slowing if not reversing of past efforts to integrate into global capital markets. The ultimate goal is not clear. Beijing had appeared to be willing to use the capital inflows to ease restrictions on capital outflows. Some even speculated that this would gradually allow the yuan to be convertible.

Although we disagreed, many observers see that introducing the digital yuan as early as next year’s Olympics would challenge the US dollar’s role. The recent actions appear to deal a blow to such speculation. Lastly, there is some thought that the PBOC could ease policy again (following the recent cut in reserve requirements) to lend support to the stock market, if needed.

Australia’s Q2 CPI came in slightly above forecasts with a 0.8% rise after 0.6% in Q1. The year-over-year pace jumped to 3.8% from 1.1%. The underlying measures were as expected, with a 1.6% year rise (from 1.1%) for the trimmed mean and a 1.7% (from 1.3%) weighted median. Still, the data is unlikely to stand in the way of the RBA announcing increased bond purchases at next week’s meeting (August 3). The lockdown in Sydney and social restrictions elsewhere are threatening the economy.

Keep an eye on Japanese weekly portfolio flows that are released first thing tomorrow in Tokyo. In the previous week, ending July 9, foreigners appear to have bought a recorded amount of Japanese bonds (JPY2.57 trillion or ~$23.3 bln). To put the figure in perspective, the previous four-week average was around JPY546 bln. For their part, Japanese investors have sold foreign bonds for the past three weeks, and the average weekly sale of JPY804 bln is the most since early March. On the other hand, equity portfolio flows have been minor.

The dollar is consolidating in about a quarter of a yen below JPY110.00 so far today. The greenback has been recovering since dipping briefly below JPY109.60 near midday in NY yesterday. A move above JPY110.00 could see JPY110.20, but the subdued session will likely continue until the FOMC statement. The Australian dollar is stagnant. It remains within the range set on Monday (`$0.7330-$0.7390). There is an option for A$710 mln at $0.7390 that expires today and another for about A$515 mln at $0.7400 that expires tomorrow.

The dollar spiked to CNY6.5125 yesterday, its highest level in three months, and broke out of the CNY6.45-CNY6.50 month-old range. However, it was pushed back into the range today as the yuan rose for the first time in five sessions. The PBOC set the dollar’s reference rate at CNY6.4929, slightly lower than the median expectation picked up in Bloomberg’s forecast (CNY6.4935).

Europe

The UK and the EU are still at odds over the Northern Ireland Protocol. However, the EC moved to de-escalate the situation. Rather than push forward with its threat of imminent legal action as the end of the month should mark a new phase of enforcement, it appears to have granted a grace period of the summer to find an amicable solution.

Germany’s August GfK consumer confidence survey was unexpectedly weak. Rather than rising to 1.0 as economists projected, it remained at -0.3. The disastrous floods seem to be the main culprit. Tomorrow, Germany reports July CPI figures and employment data. The EU harmonized measure of CPI is expected to rise to 2.9% from 2.1% in June. Unemployment may have ticked down to 5.8% from 5.9%. It was at 5.0% steadily in H2 19.

The week’s highlight for the eurozone comes on Friday with the aggregate CPI (there seems to be upside risks to the 2.0% median forecast in Bloomberg’s survey) and the first look at Q2 GDP.

In the UK, Nationwide reported its house price index fell 0.5% in July. It is the first decline since March and the largest fall since last June. The year-over-year rate moderated to 10.5% from 13.4% in June. A tax break is winding down. On July 1, the stamp-duty threshold on new purchases was halved to GBP250k, adding GBP12.5k to the average home bought in London. Starting October 1, the threshold will return to GBP125k.

The euro is trading quietly in the upper end of yesterday’s range that saw it reach $1.1840, its highest level since mid-July. It has held above $1.18 so far today, and if sustained, will be the first session since July 12 that it has not traded with a $1.17-handle. There is a billion-euro option at $1.18 that expires today and another at $1.1820, and a third at $1.1850.

Tomorrow, there is a 1.36 bln euro option struck at $1.1850 that will also expire. It suggests that the area will likely be sticky. Sterling is firm but holding below $1.39 that it approached yesterday. An option for almost GBP400 mln is struck at $1.3925 that expires today. Tomorrow there is an option for almost GBP410 mln at $1.3900 that also will be cut. Initial support is seen near $1.3860 and then $1.3820.

America

Following Monday’s unexpected decline in June’s new home sales (-6.6%) and a downward revision to the May series (-7.8% rather than -5.9%), the US reported weaker than expected June durable goods orders, mitigated in part by the upward revisions to the May data. Separately, house price increases accelerated in May.

Today’s reports of the advance goods trade balance and retail and wholesale inventories will give economists the last opportunity to adjust the Q2 GDP forecasts ahead of tomorrow’s report. The median forecast in Bloomberg’s survey sees 8.5% annualized growth in Q2 after a 6.4% pace in Q1. The price deflator is expected to accelerate to 5.4% from 4.3%.

The outcome of the FOMC meeting is center stage today. No change in policy is expected, though some members seem to want to adjust the asset purchases immediately with special attention to the mortgage-backed securities. This seems unlikely. However, Powell is unlikely to push against expectations that an announcement could be made at the next FOMC meeting in September.

By pledging to give the market a clear advance warning, it would seem to need to say something relatively soon to keep its options open for an adjustment in the pace and possibly the composition of its purchase by the end of the year. Powell could deter dissents by striking a compromise by replacing the agency bonds purchases with more Treasuries, but this too seems unlikely. The FOMC statement is unlikely to deviate much from the last one, and the Fed is unlikely to see the rising Delta covid cases as substantially impacting its economic outlook.

Canada reports June CPI figures. The year-over-year rate is expected to ease (3.2% from 3.6%) for the first time this year. Canada has three core measures, two of which may have also softened (median and trim iterations). At the end of the week, Canada will report May’s monthly GDP. It is expected to have matched April’s 0.3% contraction, but the data seems dated.

Mexico’s June trade surplus was much smaller than expected ($762 mln vs. median Bloomberg survey forecast for $2 bln). Partly, it appears that domestic demand is improving, and this will likely be seen in the Q2 GDP report due at the end of the week. The median forecast anticipated a 1.8% expansion in the quarter after a 0.8% pace in Q1.

The US dollar is encountering selling pressure near CAD1.26 for the fifth consecutive session. Key support is seen near CAD1.2525, though there is an option for almost $390 mln at CAD1.2550 that expires today. Momentum indicators like the MACD and Slow Stochastic are trending lower, and the greenback’s recovery from the multi-year low set on June 1 near CAD1.20 looks over or nearly so.

The US dollar is trading near seven-day lows against the Mexican peso (~MXN19.9330). Chart support is seen in the MXN19.80-MXN19.82 band. Nearby resistance is pegged near MXN20.03.

This article was written by Marc Chandler, MarctoMarket.

EUR/USD Daily Forecast – U.S. Dollar Moves Higher Against Euro

Euro Is Losing Ground Against U.S. Dollar

EUR/USD is currently trying to get back below 1.1800 while the U.S. dollar is gaining some ground against a broad basket of currencies.

The U.S. Dollar Index received support near the 20 EMA at 92.45 and is trying to settle above 92.50. In case this attempt is successful, the U.S. Dollar Index may gain additional upside momentum and head towards the resistance at 92.80 which will be bearish for EUR/USD.

However, it remains to be seen whether American currency will be able to gain any momentum ahead of the Fed Interest Rate Decision which will be announced later today. As usual, foreign exchange market traders will focus on Fed’s commentary as the rate is expected to stay unchanged.

While traders wait for Fed’s decision and commentary, they have a chance to take a look at Germany’s Consumer Confidence report for August. The report indicated that Consumer Confidence remained unchanged at -0.3 compared to analyst consensus of 1.

Technical Analysis

eur usd july 28 2021

EUR/USD failed to settle above the resistance level which is located at the 20 EMA at 1.1820 and moved closer to the support at 1.1800. In case EUR/USD manages to settle below this support level, it will head towards the next support at 1.1775.

A successful test of the support at 1.1775 will push EUR/USD towards the support at 1.1750. This support level has already been tested many times and proved its strength so EUR/USD will need additional catalysts to settle below 1.1750. A move below the support at 1.1750 will open the way to the test of the support at 1.1720.

On the upside, the nearest resistance level for EUR/USD is located at the 20 EMA at 1.1820. A successful test of the 20 EMA will lead to the test of the next resistance at 1.1830.

If EUR/USD gets above 1.1830, it will move towards the resistance at 1.1860. In case EUR/USD manages to settle above this level, it will head towards the next resistance level at 1.1880.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data Puts the EUR in Focus ahead of the FED Policy Decision and Press Conference

Earlier in the Day:

It was a relatively quiet start to the day on the economic calendar this morning. The Aussie Dollar was in action in the early part of the day.

For the Aussie Dollar

Inflation was in focus this morning.

In the 2nd quarter, the annual rate of inflation accelerated from 1.1% to 3.8%. Economists had forecast a pickup to 4.0%.

Quarter-on-quarter, consumer prices rose by 0.8%, falling short of a forecasted 1.0% rise. In the 1st quarter, consumer prices had risen by 0.6%.

According to the ABS,

  • The most significant price rises in the June quarter were automotive fuel (+6.5%) and medical and hospital services (+2.4%).
  • Electricity prices rose by 3.3% as a result of the continued unwinding of the Western Australian Government’s A$600 electricity credit.
  • In the 2nd quarter, the trimmed mean annual rate of inflation picked up from 1.1% to 1.6%.

The Aussie Dollar moved from $0.73726 to $0.73660 upon release of the figures. At the time of writing, the Aussie Dollar up by 0.07% to $0.7367.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.08% to ¥109.870 against the U.S Dollar, while the Kiwi Dollar was up by 0.12% to $0.69640.

The Day Ahead

For the EUR

It’s a relatively quiet day ahead on the economic data front. Consumer sentiment figures from Germany will be in focus early in the European session.

With little else for the markets to consider, we can expect EUR sensitivity to the numbers. While economist have forecast for confidence to improve, the Delta variant could test consumer optimism near-term.

At the time of writing, the EUR was up by 0.03% to $1.1820.

For the Pound

It’s another particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

Further demand for the Pound is likely following the IMF’s outlook towards the UK economy.

At the time of writing, the Pound was up by 0.06% to $1.3888.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. Trade data for June will be in focus later in the day. We don’t expect the numbers to have a material impact on the Dollar and the broader markets, however.

The market focus will be on the FED interest rate decision and press conference scheduled for late in the U.S session.

The question will be whether the FED Chair can continue to convince the markets of unwavering policy support.

At the time of writing, the U.S Dollar Spot Index was up by 0.02% to 92.453.

For the Loonie

It’s relatively quiet day on the economic calendar, with inflation figures in focus.

After a quiet start to the week, we will expect the Loonie to be responsive to the numbers.

Ultimately, however, market risk sentiment and crude oil prices will remain the key drivers on the day.

At the time of writing, the Loonie was up by 0.13% to C$1.2586 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

ECB Turns Even More Dovish. Breakthrough for Gold?

The European Central Bank held its monetary policy meeting last week. It was an important event, as it was the first meeting since the adoption of the new ECB’s strategy, and as the ECB has introduced some changes. It left the interest rates unchanged, but it modified its forward guidance.

Long story short, the ECB announced that it would keep its policy rates at ultra-low levels for even longer than previously pledged, as it doesn’t want to tighten prematurely:

In support of our symmetric two per cent inflation target and in line with our monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.

Previously, the ECB maintained that it would keep the interest rates unchanged until inflation expectations converge with the central bank’s target. The change implies that the ECB is unlikely to raise the interest rates until at least 2023, as this is when the projection horizon ends. Central bankers want inflation to be stable at the target, and they won’t hike without tapering quantitative easing earlier.

Additionally, the ECB has decided to keep the pace of its asset purchases under the Pandemic Emergency Purchase Programme at the current (faster than it was originated) pace over the third quarter of 2021:

Having confirmed its June assessment of financing conditions and the inflation outlook, the Governing Council continues to expect purchases under the pandemic emergency purchase programme (PEPP) over the current quarter to be conducted at a significantly higher pace than during the first months of the year.

So, the ECB’s monetary policy has become even more accommodative. The alteration could be explained by two factors: the ECB’s new strategy and the Delta variant of the coronavirus. But the real reason is, of course, protecting the European government from the market interest rates – however, this is a topic for another discussion.

I have covered both of the ‘official’ factors recently, warning my readers that the change in the strategy implies that the ECB has adopted an even more dovish stance and that the spread of Delta could prompt the central banks to further loosen their stance. This is exactly what has happened – as Christine Lagarde pointed out during her press conference:

The recovery in the euro area economy is on track. More and more people are getting vaccinated, and lockdown restrictions have been eased in most euro area countries. But the pandemic continues to cast a shadow, especially as the delta variant constitutes a growing source of uncertainty.

Implications for Gold

What does the change in the ECB’s monetary policy imply for the gold market? Well, one could say that more dovish central banks are positive for gold, which likes the environment of low interest rates and bond yields.

However, economics is about relative values. So, from the point of view of the comparative analysis, the ECB’s dovish shift is bad news for the yellow metal. This is why the Fed looks hawkish in comparison to the ECB, its main counterparty, so it will be interesting to see what they say tomorrow after their monetary policy meeting. After all, the Fed has actually started talking about tapering and monetary policy normalization, while the ECB has just announced that it would keep its quantitative easing at an elevated pace and would maintain its ultra-low interest rates for even longer.

Hence, the greenback appreciated relative to the euro after the ECB’s monetary policy meeting. Although a stronger dollar creates downward pressure on the yellow metal, the price of gold barely moved and is still trading around $1,800, as the chart below shows.

However, there is a silver lining here. Some market participants were actually disappointed that the ECB didn’t provide a stronger adjustment. Indeed, no monetary bazookas this time. Moreover, the ECB’s decision was not unanimous, so there is some sort of a hawkish camp. Last but not least, it might be the case that the Fed will also loosen its stance if the Delta variant spreads in a dangerous way. Having said that, the divergence in monetary policy and interest rates across the pond should be a headwind for gold prices for a while.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

 

EUR/USD Price Forecast – Euro Recovers After Initial Selloff

The Euro has initially fallen during the trading session on Tuesday but then turned around and showed signs of strength to recapture the 1.18 level. This is an area that has seen a lot of noise as of late, and the fact that the market simply refuses to go down tells you that we are more than likely going to see some type of recovery. Having said that, we are getting ready to see the so-called “death cross” form, when the 50 day EMA drops below the 200 day EMA, so I think some traders will look for some type of reason to sell off.

EUR/USD Video 28.07.21

Looking at this chart, I believe that we probably get a short-term rally, followed by a selling opportunity yet again. However, in the short term it looks like we are trying to grind a bit higher and that of course has a significant influence on what happens next. I think at this point it is going to be difficult to buy this market, simply because it has so much negativity attached to it and of course a lot of choppy behavior on the way down. That being said, I would not be a seller right here, I need to see some type of exhaustion in order to start shorting again.

The markets will more than likely continue to be choppy and noisy, so that is something that you are going to be cautious about. If we broke above the one point to zero level, then I think the longer-term uptrend could reassert itself in general.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Mid-Session Technical Analysis for July 27, 2021

The Euro is trading lower against the U.S. Dollar on Tuesday with the current intraday chart pattern suggesting trader indecision and impending volatility ahead of the start of the Federal Reserve’s two-day policy meeting later today. Last Thursday, the European Central Bank ECB came out with a dovish monetary policy statement, on Wednesday the Fed is not expected to be dovish per se and will probably announce it had discussed tapering its current bond buying program.

That being said, the Euro is still the weaker of the two currencies, but we still have to assume that this outlook has already been priced in ahead of the Fed, which may be the reason prices have been consolidating the last three sessions. In other words, investors know the Euro is bearish, they just want to know how bearish based on what the Fed has to say.

At 11:16 GMT, the EUR/USD is trading 1.1791, down 0.0012 or -0.10%.

Ahead of the Fed meeting, some traders are saying that more gains for the dollar are in store if the Fed strikes a hawkish note at the outcome of a two-day policy meeting on Wednesday although market consensus believes that is unlikely.

Stephen Jen, a hedge fund manager, took it one step further saying, “…, if Euro/Dollar breaks below 1.17, there could be large capitulation trades sending the cross to the 1.11-1.13 zone later this year.”

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.1881 will change the main trend to up, while a move through 1.1752 will signal a resumption of the downtrend.

The minor trend is up. This is creating just enough upside momentum to keep the EUR/USD afloat at current price levels. Taking out 1.1830 will indicate the buying is getting a little stronger, while a trade through 1.1755 will be a sign of renewed weakness after four days of consolidation.

The minor range is 1.1752 to 1.1830. The EUR/USD is currently straddling its 50% level or pivot at 1.1791.

The short-term range is 1.1881 to 1.1752. Its 50% level at 1.1817 is providing resistance.

The main retracement zone resistance is 1.1864 to 1.1890.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Tuesday is likely to be determined by trader reaction to 1.1791.

Bullish Scenario

A sustained move over 1.1791 will indicate the presence of buyers. The first two upside targets are 1.1817 and 1.1830. Taking out the latter could trigger an acceleration into 1.1864 to 1.1890.

Bearish Scenario

A sustained move under 1.1791 will signal the presence of sellers. This could trigger a quick break into 1.1755 to 1.1752. If 1.1752 fails to hold then look for the EUR/USD to continue to slide into the March 31 bottom at 1.1704.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Moves Up if 1.1700 Holds

The zone is just above the M L3 camarilla pivot. We can see that the price has made 3 higher lows and on a daily TF this looks bullish. From the R:R perspective, we could see a good trading opportunity towards 1.1968 levels. Watch for a bounce and continuation if the market keeps the price above 1.1700

For a look at all of today’s economic events, check out our economic calendar.

Cheers and safe trading,

Nenad

 

EUR/USD Daily Forecast – Euro Retreats After Yesterday’s Upside Move

U.S. Dollar Gains Ground Against Euro

EUR/USD is currently trying to settle back below 1.1775 while U.S. dollar is moving higher against a broad basket of currencies.

The U.S. Dollar Index is slowly moving towards the resistance level at 92.80. In case the U.S. Dollar Index gets above this level, it will head towards the resistance at 93.10 which will be bearish for EUR/USD.

There are no important economic reports scheduled to be released in EU today so foreign exchange market traders will focus on economic data from U.S. where Durable Goods Orders report is expected to show that Durable Goods Orders increased by 2.1% month-over-month in June.

Case-Shiller Home Price Index report is projected to show that housing prices continued to move higher, growing by 16.4% year-over-year in May.

I’d note that trading will likely remain choppy as traders wait for Fed Interest Rate Decision which will be released on Wednesday. EUR/USD has been trading between the support at 1.1750 and the resistance at 1.1830 in recent trading sessions, and it will need significant catalysts to get out of this range ahead of the Fed decision.

Technical Analysis

eur usd july 27 2021

EUR/USD declined below 1.1800 and is trying to settle below the support at 1.1775. RSI is in the moderate territory, and there is plenty of room to gain downside momentum in case the right catalysts emerge.

If EUR/USD manages to settle below the support at 1.1775, it will head towards the next support level which is located at 1.1750. A move below this level will open the way to the test of the support at 1.1720. If EUR/USD gets below 1.1720, it will move towards the support at 1.1690.

On the upside, the previous support at 1.1800 will serve as the first resistance level for EUR/USD. A successful test of this level will push EUR/USD towards the 20 EMA which is located at 1.1820. In case EUR/USD settles above the 20 EMA at 1.1820, it will get to the test of the next resistance level at 1.1830.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data from the U.S to Put the Dollar in the Spotlight

Earlier in the Day:

It was a particularly quiet start to the day on the economic calendar this morning. There were no material stats to provide the markets with direction early in the day.

For the Majors

At the time of writing, the Japanese Yen was up by 0.13% to ¥110.250 against the U.S Dollar, while the Aussie Dollar down by 0.07% to $0.7380. The Kiwi Dollar was down by 0.14% to $0.6994.

The Day Ahead

For the EUR

It’s a particularly quiet day ahead on the economic data front. There are no material stats due out of the Eurozone to provide the EUR with direction.

The lack of stats will leave the EUR in the hands of market risk sentiment on the day, with COVID-19 remaining a key area of focus.

At the time of writing, the EUR was up by 0.01% to $1.1804.

For the Pound

It’s also particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

At the time of writing, the Pound was up by 0.02% to $1.3821.

Across the Pond

It’s a relatively busy day ahead on the economic calendar. Durable and core durable goods and consumer sentiment figures are due out later today.

Expect core durable goods orders and consumer confidence figures to be the key drivers later in the day.

At the time of writing, the U.S Dollar Spot Index was down by 0.04% to 92.6140.

For the Loonie

It’s another quiet day on the economic calendar, with no major stats due out to provide the Loonie with direction.

The lack of stats will continue to leave the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was up by 0.04% to C$1.2546 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

Elliott Wave Cycles Point Major Forex Pairs Trade At Bottom

Summary

  • Major pairs trade at the bottom
  • EURUSD tries to complete an ending diagonal
  • GBPUSD bounced with impulsive wave structures
  • Aussie is also trying to find the support

First support is at 1.1760 followed by 1.1700. Divergence on the RSI also indicates a potential bounce, ideally once an ending diagonal is finished.

EURUSD 4h Elliott Wave Analysis Chart

Graphical user interface, chart, scatter chart Description automatically generated

GBPUSD is turning around after a nice five wave drop to 1.3569. We have seen a drop below April level for a short period of time which gives an impression that market has bottomed, possibly even completed flat correction. However, the most important is current intraday bullish impulse from the low which suggests more upside ahead, especially after a broken channel resistance line near 1.3800

GBPUSD 4h Elliott Wave Analysis Chart

Graphical user interface Description automatically generated

AUDUSD turned back to the lows again but it came down out of wave 4) running triangle pattern which suggest the final leg, probably wave 5) of C is unfolding, before a reversal. So, bounce and recovery may occur anytime soon, ideally in impulsive fashion which is needed to confirm a change in trend.

AUDUSD 4h Elliott Wave Analysis Chart

Graphical user interface, chart Description automatically generated

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Bounces From Low Level

The Euro has rallied quite a bit during the course of the trading session on Monday, showing signs of trying to recover yet again. Ultimately, this is a market that I think sees a lot of resistance above at the 1.20 level, so I think that is only about as far as we can go easily. The 50 day EMA is starting to get towards the 200 day EMA in order to form the so-called “death cross”, so that is something worth paying attention to. However, you should also pay attention to the fact that the Federal Reserve is on tap this week, so there will probably be some choppy behavior.

EUR/USD Video 27.07.21

Nonetheless, the Euro has been a bit oversold as of late, and it is also worth noting that although this is a very poor looking chart, you should see that the last several days we have not available to break the Euro down. Because of this, it is likely that the market will continue to see choppy behavior and the occasional bounce, but I do not think that this is going to be a major trend change in the short term. After all, there is even more support to be tested below at the 1.16 handle which I think is going to be massive in its implications. A little bit of a correction makes quite a bit of sense, because it has been so negative as of late, and it will of course be choppy which 95% of the day is in the EUR/USD pair tend to be.

For a look at all of today’s economic events, check out our economic calendar.

EURUSD Testing Significant Support

Inflation is high and may force the American regulator to be more aggressive. Also, there are risks of seeing a reduction in liquidity on behalf of the Fed, while the European Central Bank is expanding its money printing press capacity. Taken together, these factors are in favour of further USD strengthening.

The statistics published today showed that the German Ifo Business Climate dropped to 100.8 points. It means that the German businesses are predisposed more negatively than before as there are serious delivery issues, which, in their turn, put significant pressure on both industrial and retail sectors of the economy.

It was said that over 60% of the companies reported a shortage of raw materials required for manufacturing, as well as an upsurge in raw material prices. In this light, the German industry can not operate at its normal pace. Unfortunately for the European currency, it is happening at a time when the USA is experiencing a relatively powerful economic recovery and this will put additional pressure on the major currency pair.

In the H4 chart, EUR/USD is falling towards 1.1725 and may later correct to reach 1.1800. After that, the instrument may resume trading downwards with the target at 1.1690. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is trading below 0, thus confirming a further downtrend on the price chart.

As we can see in the H1 chart, after falling and reaching 1.1755, EUR/USD has completed the ascending correctional impulse at 1.1800. Possibly, the pair may rebound from the latter level and resume trading within the downtrend with the short-term target at 1.1725. From the technical point of view, this scenario is confirmed by the Stochastic Oscillator: after rebounding from 80, its signal line is steadily moving downwards to reach 50. Later, the line may break 50 and continue falling towards 20.

By Dmitriy Gurkovskiy, Chief Analyst at RoboForex

Disclaimer

Any forecasts contained herein are based on the author’s particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.

EUR/USD Mid-Session Technical Analysis for July 26, 2021

The Euro is trading higher against the U.S. Dollar on Monday as investors turned their focus to this week’s two-day Federal Reserve meeting on Tuesday and Wednesday. Analysts expect the Fed to have detailed tapering discussions but without providing any concrete guidance as to the timing of the move. The Fed at its last meeting on June 16 dropped a reference to the coronavirus as a drag on the economy.

At 11:54 GMT, the EUR/USD is trading 1.1796, up 0.0026 or +0.22%.

In economic news, German business morale fell unexpectedly in July on continuing supply chain worries and rising coronavirus infections, a survey showed on Monday.

The Ifo Institute said its business climate index fell to 100.8 from a revised 101.7 in June. A Reuters poll of analysts had pointed to a July reading of 102.1.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum shifted to the upside on July 22. A trade through 1.1881 will change the main trend to up. A move through 1.1752 will signal a resumption of the downtrend.

The minor trend is up. This is controlling the momentum. A trade through 1.1830 will indicate that the momentum is getting stronger. The minor trend changes to down on a move through 1.1755.

The minor range is 1.1752 to 1.1830. Its 50% level or pivot is 1.1791.

The short-term range is 1.1881 to 1.1752. Its 50% level at 1.1817 is potential resistance.

The main retracement zone at 1.1864 to 1.1890 is additional resistance.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Monday is likely to be determined by trader reaction to 1.1791.

Bullish Scenario

A sustained move over 1.1791 will indicate the presence of buyers. If this move creates enough upside momentum then look for the rally to possibly extend into 1.1817, followed by 1.1830. The latter is a potential trigger point for a quick surge into 1.1851 to 1.1864.

Bearish Scenario

A sustained move under 1.1791 will signal the presence of sellers. This could trigger a retest of the minor bottom at 1.1755 and the main bottom at 1.1752.

For a look at all of today’s economic events, check out our economic calendar.

German Business Sentiment Wanes but Fails to Sink the EUR

Following last week’s PMI numbers, the German economy was back in focus at the start of the week.

Business Sentiment

Business sentiment figures from Germany were in focus early in the European session.

In July, the Ifo Business Climate Index fell from 103.7 to 101.2, versus a forecasted decline to 103.6.

According to the July survey,

  • Sentiment towards current conditions improved, with the current conditions sub-index rising from 99.7 to 100.4.
  • Concerns over the outlook weighed, however, with the business climate sub-index falling from 101.7 to 100.8.

At sector level,

  • The index in manufacturing fell due to a marked decline in optimism in companies’ expectations. It was a 4th consecutive monthly decline.
  • By contrast manufacturer assessment of current conditions hit the highest level since Aug-2018.
  • There was a similar trend across the services sector, with the business climate sub-index weakening, while firms were more satisfied with their ongoing business.

Market Impact

Ahead of today’s inflation figures, the EUR had risen from a pre-stat and current day low $1.17635 to a pre-stat and current day high $1.18001.

In response to today’s stats, the EUR fell to a post-stat low $1.17674 before rising to a post-stat high $1.17980.

At the time of writing, the EUR was up by 0.20% to $1.17968.

EURUSD 260721 Hourly Chart

Next Up

New home sales figures from the U.S. We don’t anticipate any EUR sensitivity to the data, however.

EUR/USD Daily Forecast – U.S. Dollar Is Mostly Flat Against Euro

EUR/USD Stays Close To Support At 1.1775

EUR/USD continues to trade near the support level at 1.1775 while the U.S. dollar is mostly flat against a broad basket of currencies.

The U.S. Dollar Index has recently made an attempt to settle below the support level at 92.80 but this attempt yielded no results. In case the U.S. Dollar Index declines below this level, it will move towards the 20 EMA at 92.45 which will be bullish for EUR/USD.

The recent flash PMI reports from EU exceeded analyst expectations. Manufacturing PMI declined from 63.4 in June to 62.6 in July compared to analyst consensus of 62.5 while Services PMI improved from 58.3 to 60.4 compared to analyst consensus of 59.5.

However, these reports failed to provide material support to euro as foreign exchange market traders remained focused on the safe-haven role of the U.S. dollar.

Today, Treasury yields are moving lower as bond traders buy U.S. government bonds in order to increase their exposure to safe-haven assets. In this light, the American currency may also get some support from safe-haven buying during today’s trading session.

Technical Analysis

eur usd july 26 2021

EUR/USD failed to gain additional downside momentum and is trading close to the support level at 1.1775. If EUR/USD settles below the support at 1.1775, it will move towards the next support level at 1.1750.

A successful test of the support at 1.1750 will be a worrisome development for EUR/USD bulls as it will indicate that EUR/USD tries to gain additional downside momentum. A move below 1.1750 will push EUR/USD towards the support at 1.1720. If EUR/USD manages to settle below this level, it will head towards the next support at 1.1690.

On the upside, EUR/USD needs to get above the resistance at 1.1800 to gain upside momentum in the near term. A move above this level will push EUR/USD towards the 20 EMA which is located at 1.1820.

If EUR/USD gets above the 20 EMA, it will get to the test of the next resistance at 1.1830. In case EUR/USD settles above 1.1830, it will head towards the resistance at 1.1860.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data from Germany Puts the EUR in Focus

Earlier in the Day:

It was a relatively busy start to the day on the economic calendar this morning. The Japanese Yen and the Kiwi Dollar were in action in the early hours.

For the Kiwi Dollar

Trade data was in the spotlight this morning.

In June, New Zealand’s trade surplus narrowed from NZ$498m to NZ$261m. Economists had forecast a widening to NZ$500m.

According to NZ Stats,

  • In June, the value of all goods exported increased NZ$871m (17%) from June 2020 to NZ$6.0bn.
    • Exports of logs and wood reached a new high, up NZ$105m (23%).
    • Beef exports together with the exports of milk powder, butter, and cheese also contributed to the rise in exports.
    • China received the largest share of exports, accounting for 32% of total exports in June.
  • Imports increased NZ$1.1bn (24%) to NZ$5.70bn in June compared with June 2020.
    • A 166% surge in the imports of vehicles, parts, and accessories drove imports northwards.

The Kiwi Dollar moved from $0.69785 to $0.69794 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.04% to $0.69710.

For the Japanese Yen

Private sector PMIs for July were in focus this morning.

The Manufacturing PMI fell from 52.4 to 52.2, with the services PMI declining from 47.2 to 46.4. Economists had forecast PMIs of 51.9 and 47.0 respectively.

According to the July survey,

  • The composite fell from 48.9 to 47.7, with output falling at the quickest pace in 6-months.
  • Firms attributed the decline to a continued rise in new COVID-19 cases and state of emergency measures.
  • New orders declined at a strong pace, driven by a stronger decline across the services sector.
  • Employment levels continued to rise across the private, albeit at a slower pace, while the services sector saw employment levels fall.
  • Firms reported a more marked pickup in output prices, driven by the manufacturing sector.
  • Optimism weakened in July, with both sectors becoming less optimistic.

The Japanese Yen moved from ¥110.544 to ¥110.532 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.14% to ¥110.400 against the U.S Dollar.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.11% to $0.7356.

The Day Ahead

For the EUR

It’s a relatively quiet day ahead on the economic data front. German business sentiment figures for July are due out later this morning.

With little else for the markets to consider, expect EUR sensitivity to the numbers.

At the time of writing, the EUR was up by 0.02% to $1.1773.

For the Pound

It’s a particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

On the monetary policy front, BoE member Vlieghe is scheduled to speak. Any forward guidance on policy or views on the economic outlook would influence.

Away from the economic calendar, however, COVID-19 news updates will need monitoring.

At the time of writing, the Pound was up by 0.06% to $1.3756.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. New home sales figures for June are due out later today.

We don’t expect too much influence from the numbers, as the markets look ahead to Wednesday’s policy decision.

At the time of writing, the U.S Dollar Spot Index was up by 0.02% to 92.9260.

For the Loonie

It’s a quiet start to the week, with no major stats due out to provide the Loonie with direction.

The lack of stats will leave the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was down by 0.11% to C$1.2578 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

Stretched Dollar Remains Firm

Sterling fell to new six-month lows while the euro recorded its lowest level since late March, and the Australian dollar fell to new lows for the year. Led by a 2% fall in the South African rand, with the bulk of the sell-off coming after the central bank kept policy rates unchanged, which is now lower on the year, most emerging market currencies weakened. The Russian rouble was the strongest in that space, though the lion’s share of the gains came before the central bank hiked its key rate by 100 bp to 6.5% ahead of the weekend.

The dollar had seemed to track short-term US interest rates until recently, and its strength has come in the face of softer rates. The implied yield of the December 2022 Eurodollar futures contract finished the week near 42 bp, down 13 bp over the past few weeks. The 10-year yield fell to about 1.125% before recovering to trade closer to 1.30% at the end of last week.

The dollar and interest rates are behaving as one would expect in a risk-off environment. The contagious Delta variant appears to be dampening activity economic activity in Australia, Japan, and parts of Europe. Several US states are recording multi-month highs in cases, and weekly initial jobless claims unexpectedly rose to their highest level in two months (in the week through July 16).

Floods in Germany, Belgium, and China could also impact economic activity and prices. Droughts in North America may boost food prices and boost natural gas prices as an alternative for a decline in hydroelectric output. A freeze in Brazil sent coffee prices sharply higher, while wildfires in Canada saw lumber prices rise dramatically (almost 22% over the past three sessions) after trending lower in recent weeks.

On the other hand, equities are harder to fit into the risk-off narrative. Most of the large Asia Pacific equity market fell, but Europe’s Dow Jones Stoxx 600 rallied and will take a four-day advance into next week. The benchmark is within striking distance of the record high it set earlier this month. The S&P 500 and NASDAQ advanced and have only fallen in two of the past eight weeks. They are both poised to set fresh recorded highs.

Dollar Index

The Dollar Index recorded a key reversal in the middle of last week. After rising to its best level in three months (~93.20), it reversed lower and settled below the previous day’s low. Follow-through selling the next day took it to 92.50 and the 20-day moving average. It recovered by stalled near 93.00 before the weekend. Neither the MACD nor the Slow Stochastic confirmed the new high, but the underlying tone remains constructive and buying on dips seems stronger than the selling pressure into rallies. Moreover, the five and 20-day moving averages cross-over has caught the major moves this year since February, and the five-day average is still above the 20-day.

The year’s high was set in late March near 93.45. A break above there could target the high from early last November near 94.30, and the 94.50 area corresponds to the (38.2%) retracement of the drop since the panic-driven high in March 2020 near 103.00.

Euro

The downside momentum of the euro seemed to pause in recent days ahead of $1.1750. However, the bounces have been brief and shallow. The momentum indicators have not confirmed the recent lows. The risk is for a test on the year’s low set in late March near $1.1700, and a break of it could signal a return to the low set near $1.16 on the night of the US election last November.

The ECB’s lower for longer forward guidance could attract funds into the asset markets, but the euro itself is unloved, and speculators in the futures market are still scaling out of a net long position. A move above $1.1830, where the 20-day average is found, would lift the tone. The euro has not closed above the 20-day moving average since early June.

Japanese Yen

The dollar began last week testing JPY109.00, its lowest level since late May as the US 10-year note yield slumped below 1.20%. By the end of the week, the yield was back near 1.30%, and the greenback was around JPY110.60. It settled above its 20-day moving average (~JPY110.40) for the first time in a couple of weeks. The MACD and Slow Stochastic have turned up from oversold territory. Overcoming chart resistance near JPY110.65 could see a push above JPY111.00. The year’s high was set earlier this month near JPY111.65.

British Pound

Sterling fell to five-month lows near $1.3570 on July 20, just shy of the (50%) retracement of the rally from last November, found near $1.3550. In the second half of the week, a recovery attempt stalled near $1.3785 in front of the 20-day moving average (~$1.38). This area presents an important technical hurdle, which overcoming would lift the tone. The momentum indicators look constructive as they try to turn higher. A move below $1.3680 warns of a return to the lows.

Canadian Dollar

The greenback reached 5.5-month highs against the Canadian dollar at the start of last week, near CAD1.28. It pulled back to the CAD1.2525 area before buyers re-emerged, and it consolidated mostly below CAD1.26. The MACD has turned down, as has the Slow Stochastic, without confirming the high. Still, a push back above the CAD1.2650 area could warn of another run at the highs. The 20-day moving average is near CAD1.25, and the US dollar has not closed below it since early June. Doing so now would likely confirm that a top is in place.

Australian Dollar

The elevated covid cases in Sydney and the weakest composite PMI (preliminary reading) since May 2020 (45.2) illustrate headwinds for the Australian economy. The minutes from last month’s RBA meeting showed that officials have a flexible stance toward bond purchases. It is likely to use that flexibility at its August 3 meeting to boost its bond purchases. Ahead of that, investors expect a jump in Australia’s Q2 CPI, with the headline rising above 3.5% year-over-year from 1.1% in Q1.

The underlying measures will likely firm toward 1.5%-1.6% from 1.1%-1.13%. The Aussie posted a key reversal in the middle of the week by falling to new lows for the year (~$0.7290) and then recovered to finish above the previous day’s high. Sellers were lurking in front of $0.7400 and drove it back to $0.7350 ahead of the weekend. The pre-weekend price action was poor, and the close was near session lows. The next important support area is near $0.7300.

Mexican Peso

Although the dollar set four-day lows ahead of the weekend, it still managed to close high (0.5%) on the week for the third consecutive week. The JP Morgan Emerging Market Currency Index fell for the fourth consecutive week and the sixth weekly fall in the past seven weeks. The greenback peaked against the peso in the middle of the week, slightly above the 200-moving average (~MXN20.21). Initial support now is seen near MXN19.95 and a stronger shelf in the MXN19.80-MXN19.83 area.

The Slow Stochastic is trending higher and is approaching overbought territory. The MACD has flatlined near the trough. In the slightly bigger picture, the dollar has mostly been confined to a range set on June 24 (~MXN19.7150-MXN20.2150).

Chinese Yuan

The US dollar posted a minor gain of about 0.15% against the yuan ahead of the weekend to secure another weekly advance. The advance covers the last eight weeks without fail. While that is statistically true and no doubt has not been lost on official and private observers, it is also true that the greenback has been mostly in a CNY6.45-CNY6.50 range. Rather than see a depreciation of the yuan, it has gone essentially nowhere.

The dollar has not traded above the high set in late June near CNY6.4910 this month, though it was approached a couple of times. It is also true that the yuan’s 0.7% gain against the dollar this year make it one of the strongest emerging market currency so far this year and stronger than all the major currencies but the Canadian dollar (~1%). Moreover, by focusing on the eight-week decline of the yuan against the dollar, one misses the fact that the yuan is at five-year highs on a trade-weighted basis (CFETS).

This article was written by Marc Chandler, MarctoMarket.

Lower for Longer

While the existing vaccines seem to have lost some of their ability to prevent the illness, they remain a power prophylactic against hospitalization and death. Nevertheless, new social restrictions have been introduced in some high-income countries, even those like Israel, that have been fairly successful in vaccinating a large part of their population.

The virus is once again raising the prospects of slowing the economic recovery that was unevenly unfolding. The preliminary July PMI for Australia, UK, France, and the US disappointed. Expectations for the trajectory of monetary policy are being impacted. Consider that the implied yield of the December 2022 Eurodollar futures fell to 40 bp in the middle of last week from 55 bp on July 1.

A similar futures contract in the UK, the December 2022 short-sterling implied yield fell from 58 bp in mid-July to almost 40 bp on “Freedom Day” as the UK dropped all social restrictions and mask requirements. The implied yield of the December 2022 Bank Acceptances in Canada fell 20 basis points from July 14 to nearly 105 bp ahead of the weekend. In Australia, the December 2022 bill futures contract’s implied yield fell a little over 60 bp on July 6 to 36 bp last week.

The December 2022 Euribor futures contract has been considerably steadier as it is widely accepted that the European Central Bank will not lift rates until after 2023. The implied yield has been confined to a -42 bp to – 50 bp trading range since the end of April. The yield finished last week at -49 bp, falling about five basis points since the ECB meeting. The ECB’s new forward guidance signaled that bond purchases and low rates will prevail until the staff forecasts that the 2% target can be sustained. In June, the staff forecasts projected 2023 CPI at 1.4%.

The signal of lower for longer helped drive European bond yields to new 3-4 month lows. The French 10-year bond yield had been offering a positive yield since the second half of April but recently moved back below zero. One has to pay Greece 50 bp to lend to it for two years, which is a little more than one would pay to Italy for the same maturity.

Greece takes about 15 bp a year from those lending to it for five years, while Italy’s five-year yield has dipped below zero for the first time since early April. The amount of negative-yielding bonds in the world has increased to almost $16 trillion from below $13 trillion in late June, and that does not include Japan’s 10-year bond, where the benchmark yield is less than a basis point.

The ECB’s dovishness likely minimizes the impact of the preliminary July CPI figures. In July 2020, the eurozone saw consumer prices fall by 0.4% on the month and again in August. This speaks to a likely acceleration of the year-over-year pace from 1.9% in June. Also, note that since at least 2000, prices gained less in July than in June (and consistently rose more in August than July).

The monthly increase in June was 0.3%. The Bloomberg survey shows economists anticipate sharp month-over-month declines in Italian and Spanish prices. French CPI is also expected to have fallen slightly in July. German inflation may have ticked up. These considerations suggest the year-over-year rate may have edged above 2%.

The eurozone will provide its first estimate of Q1 GDP at the same time as the CPI figures on July 30. Recall that in Q4 19, before the pandemic struck, the eurozone economy was stagnant. Last year contracted in H1 before recovering in Q3. However, unlike the US experience, the eurozone economy contracted against in Q4 20 and Q1 21. Despite the spread of the Delta mutation and the floods in parts of Europe, including Germany, the recovery now appears to be on more solid footing, and the EU Recovery Funds are at hand. The regional economy likely expanded around 1.4%-1.5% in Q2 and is poised to accelerate further here in Q3.

The highly contagious, though less lethal mutation (if vaccinated), has pushed investors to reconsider the recovery theme that had two drivers last November, the US election and the vaccine announcement. Of course, this does not mean that it is the only development in the market, but it seems to be a relatively new and powerful one. The US dollar rallied as the pandemic first struck, partly as a safe haven as US Treasuries were bought and partly as a function of the unwinding of dollar-funded purchases of risk assets (e.g., emerging markets).

When things began to stabilize at the end of last March 2020, and the NBER now dates the end of the US recession as April 2020, the dollar trended lower and accelerated into the end of the year and began to recover in early January. From the end of March through December last year, the Antipodeans and Scandis led the move against the greenback and appreciated roughly 20%-25% against the US dollar. These currencies are often perceived to be levered to world growth and are often more volatile than the other majors. Over the past three months, they have been the weakest, losing 3.0-6.50%.

The opposite is also true in the sense that the Swiss franc and Japanese yen, other currencies often used for funding, hence the appearance of safe-haven appeal, were the worst performers against the dollar in the last nine months of 2020 (rising about 8.25% and 4.5% respectively). However, over the past three months, they have been among the most resilient in the face of the dollar’s surge. The Swiss franc is off less than three-quarters of a percent, while the yen is off by about 2.4%.

A challenge for investors and policymakers is the evolution of the virus that renders some of the high-frequency data rather dated and arguably less impactful outside of the headline risk posed. The Federal Reserve has succeeded in securing for itself much room to maneuver and is not tied to a particular time series, like the monthly jobs report or data point. The FOMC statement is likely to hardly change from the previous one.

Discussions about the pace and composition of the Fed’s bond-buying will continue. Still, Fed Chair Powell was speaking for the central bank when he told Congress recently that the bar to adjust the purchases (substantial further progress toward the Fed’s targets) has not been met.

The Jackson Hole symposium at the end of August has long been seen as the first realistic window of opportunity for the Fed to signal its intention to slow, possibly alter the composition of its bond purchase, and shape it more formally at the September FOMC meeting. Ahead of Jackson Hole, there is one more jobs report, and the early call is for around a 750k increase.

Reporters may try to draw Powell out but are unlikely to have much more success than the US Senators and Representatives. There is ongoing interest in the size of the reverse repo facility, for which the Fed now pays five basis points at an annualized rate, the same as a six-month bill. In addition, Powell pushed back against suggestions by some officials that the central bank’s MBS purchases are lifting house prices beyond the access of many American families. Will reporters press him on this or the buying of inflation-protected securities that arguably distort the price discovery process and the break-even metric?

Stable coins’ regulatory framework may be questioned. Recall that just before Biden took office, the Comptroller of the Currency allowed federally chartered banks to used distributed ledgers (blockchain) and conduct business with stable coins. There is a push to treat stable coins as securities for regulatory purposes. While the ECB recently announced it was going forward with a research and design phase of its development of a digital euro, the Federal Reserve’s report is expected in September. Powell said what many officials seem to believe that the introduction of a digital dollar would likely dry up demand for stable coins and crypto.

The day after the FOMC meeting concludes, the US reports its first estimate of Q2 GDP. The median forecast in Blomberg’s survey has crept up in recent days to 8.5% at an annualized pace, up from 6.4% in Q1. The NY Fed’s GDPNow model puts growth at 3.2%, while the Atlanta Fed’s model is closer to the market at 7.6%, while the St. Loius Fed Nowcast stands at 9%.

Even before this surge in the virus in the US, where about half of the adult population is fully vaccinated, we suggested there was a reasonable chance that Q2 marks the peak in growth. Fiscal policy will increasingly be a drag, pent-up consumer demand will be satiated. Monetary policy is near a peak. Perhaps the recent increase in the rate paid on deposits at the Fed and on the reverse repo facility and the recent sales of corporate bonds bought in 2020 mark the end of the easing cycle. We have also underscored the restrictive impact of doubling the oil price since the end of last October.

While there does not appear to be an iron law, it would not be surprising to see price pressures peak with a bit of a lag. This dovetails with the timeframe suggested by both Powell and Yellen. Some recent industry data suggests that the US used car market (accounting for around a third of the recent monthly increases in CPI) is normalizing in terms of inventory, and prices have softened in the wholesale markets.

We note that input prices and prices paid components Markit PMI have fallen in June, and the preliminary report suggests a further decline is taking place this month. Airfare and the price of hotel accommodations, and food out of the house, appear to be a one-off adjustment rather than persistent increases.

The US will report June personal income and consumption figures ahead of the weekend, but the data will already be embedded in the GDP estimate. On the other hand, the PCE deflator, which the Fed targets rather than the CPI, may draw attention. It is expected to post a sharp 0.7% increase on the month for around a 4.2% year-over-year. It rose by 0.4% in May and a 3.9% year-over-year rate. The core rate, which the Fed does not target but makes references from time to time, is expected to accelerate to 3.7% from 3.4%.

Lastly, the infrastructure debate in the US Senate looks to come to a head in the days ahead. It could, in turn, shape the political climate until next year’s midterm elections. The latest wrinkle is that what might serve as the basis of a compromise in the Senate may be rejected by a number of Democrats in the House. The failure to find a bipartisan solution for even the physical infrastructure components will not defeat the Biden administration but force it to rely on the reconciliation mechanism, which is confined to fiscal policy.

It would likely hamper the administration on non-budgetary fiscal issues. The debt ceiling looms. The Congressional Budget Office sees the Treasury running out of room to maneuver in October or November. Biden’s spearheading of a 15% minimum corporate tax rate might not need their approval, but the approval of 60 Senators may be needed for the other component of the global tax reform, the agreement to link the sales and taxes for the largest companies.

This article was written by Marc Chandler, MarctoMarket.

The Week Ahead – Corporate Earnings, Economic Data, the FED, and COVID-19 in Focus

On the Macro

It’s busier week ahead on the economic calendar, with 71 stats in focus in the week ending 30th July. In the week prior, just 33 stats had also been in focus.

For the Dollar:

Core durable goods and consumer confidence figures will be in focus on Tuesday. While both sets of numbers are key, consumer confidence should have the greater influence.

On Thursday, 2nd quarter GDP numbers are due out alongside weekly jobless claims data.

While 2nd quarter GDP numbers will be the key driver, another increase in claims would overshadow any positive GDP numbers.

At the end of the week, personal spending and consumer sentiment figures will also draw attention.

In the week ending 23rd July, the Dollar Spot Index rose by 0.24% to 92.912.

For the EUR:

It’s a busy week on the economic data front.

Early in the week, the German economy will be back the spotlight.

German business and consumer sentiment and unemployment figures will be in focus in the 1st half of the week.

On Friday, the focus will then shift to 2nd quarter GDP numbers for France, Germany, and the Eurozone.

Throughout the week, member state and Eurozone prelim inflation figures for June will also draw attention.

For the week, the EUR fell by 0.30% to $1.1771.

For the Pound:

It’s a particularly quiet week ahead on the economic calendar.

Economic data is limited to housing sector data that should have a limited impact on the Pound.

A lack of stats will leave the Pound in the hands of COVID-19 news updates in the week.

The Pound ended the week down by 0.14% to $1.3748.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

Inflation figures are due out on Wednesday ahead of GDP numbers on Friday.

While both sets of numbers will influence, market risk sentiment and crude oil pries will remain the key driver. Rising COVID-19 cases continue to threaten to derail the global economic recovery and weigh on demand for crude oil.

The Loonie ended the week up 0.39% to C$1.2564 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Consumer and wholesale inflation figures are due out in the week.

While wholesale inflation will influence, expect consumer inflation figures to be key.

Away from the economic calendar, any new COVID-19 containment measures would further test Aussie Dollar support.

The Aussie Dollar ended the week down by 0.47% to $0.7366.

For the Kiwi Dollar:

It’s a quiet week ahead. Early in the week, stats are limited trade data. Late in the week, consumer confidence numbers will also be in focus.

While positive numbers will provide the Kiwi with support, market risk sentiment will influence.

Any further signs of a slowdown to the global economic recovery and expect the Kiwi Dollar to come under pressure.

The Kiwi Dollar ended the week down by 0.36% to $0.6974.

For the Japanese Yen:

Early in the week, private sector PMIs for July will be in focus.

Both sets of numbers will draw plenty of attention ahead of a busy 2nd half of the week.

At the end of the week, retail sales and prelim industrial production figures will have a greater impact on the markets.

The Japanese Yen fell by 0.44% to ¥110.550 against the U.S Dollar.

Out of China

It’s a particularly quiet week ahead, with no major stats to provide the markets with direction.

A lack of stats will leave chatter from Beijing in focus through the week.

At the end of the week, NBS private sector PMIs from China will come into view. The numbers are due out next weekend.

The Chinese Yuan ended the week down by 0.03% to CNY6.4813 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. Following the withdrawal of troops from Afghanistan, news updates from the Middle East will also need continued monitoring…

Corporate Earnings

Among the big names from the U.S include Apple Inc. (Tues), Microsoft Corp. (Tues), and Amazon.com Inc. (Thurs).