Eur/usd - page 480
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On the last Friday’s session the EURUSD tried to rally but found enough resistance near the 50.0% Fibonacci retracement to give back to the market all of its gains and closed near the low of the day, however closed within Thursday’s range, which suggests being slightly on the bearish side of neutral.
The pair is trading below the 10 and the 200-day moving averages that are acting as a dynamic resistance and is trading above the 50-day moving average that is acting as dynamic support.
The key levels to watch are: a daily resistance at 1.1237, the 10-day moving average at 1.1207 (resistance), the 200-day moving average at 1.1173 (resistance), the 50-day moving average at 1.1138 (support) and a daily support at 1.1097.The Eurozone is showing signs of a struggle
Is the Eurozone showing signs of contraction?
This morning’s Markit Services PMI for both Germany and the Eurozone captured business conditions such as sales and employment within service sectors, the data hints at a struggling economy following the UK’s decision to leave the EU. In contrast, we have seen positive numbers in the UK’s Markit Service PMI, is this a sign of post-Brexit hope for Sterling?
ECB to provide further stimulus?
Last week inflationary figures for the Eurozone showed concerns within an economy that has historically struggled to boost its inflation. Balancing the economies of 28 countries is a difficult challenge for the ECB. With limited options but to add further Quantitative Easing or face negative interest rates, Mario Draghi may be weighing up his options ahead of Thursday’s interest rate decision.
I am therefore edging towards the idea that further stimulus from the ECB could be on the table. We could therefore see GBPEUR exchange rates move into 1.20 territory.
If you are buying Euros in the near future, Thursday could present further strength for Pound Sterling. I am also expecting further strength for GBPEUR as we approach October before the UK begins its official withdrawal from the EU.
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EUR/USD Post NFP & Ahead Of ECB
EURUSD downside momentum waned last week following weaker-than-expected US manufacturing ISM and mixed labour market data.
The payroll report last week showed a lower-than-expected job creation, at 151k. Despite the slower pace of job gains, the report indicates that labor market health remains intact and, therefore, that economic activity remains solid. As such, we viewed the US labour market report as “just enough” to confirm the recent trend and continue to forecast a September rate hike against market expectations for an unchanged policy decision.
In that regard, reactions of Fed officials will be watched this week. On Tuesday, San Francisco Fed President Williams will speak on the economic outlook. He should give a solid signal of whether the headline number was strong enough, in his view, to warrant a rate hike. On Friday, Boston Fed President Rosengren will speak. We believe he supports one rate hike this year and is likely agnostic over the precise timing of the hike around that framework.
This week’s ECB policy meeting (Thursday) will likely be neutral for EURUSD, in our view. Without significant changes to EA activity since June, we expect the ECB to adopt a ‘wait and see’ response, keeping all policy settings unchanged
Our own expectation for European growth is that the political and policy risks, which were already elevated for Europe, have become even more pronounced post-Brexit. We think these risk factors will eventually lead to investment weakening by the end of 2016 but do not think the ECB will factor in these political risks at this juncture. We also expect only marginal downward revisions to the ECB’s inflation projections with risks still skewed to the downside. Our expectation for further policy easing in H2 16 remains in place, however, with the ECB likely expanding its QE by six to nine months at its October or December meetings, accompanied by modifications to the programme's technical parameters. We think that this move is highly expected by the FX markets.
The week is relatively quiet in terms of US data releases. We expect the ISM non-manufacturing to move down to 55.4 in August (Tuesday). We believe the slightly higher readings over the past two months reflect, in part, a bounce back after soft activity in the first five months of the year. At this level, non-manufacturing activity will continue to expand.
On the EUR data front, we expect German factory orders growth (Tuesday) to come in at 0.5% m/m, rebounding somewhat from the 0.4 point decline in June as PMI new orders still stand well above the 50-threshold indicating expansion. We look for the final reading of euro area Q2 GDP to be confirmed at 0.3 q/q% (Tuesday), forecast German industrial production growth (Wednesday) to contract 0.2% m/m, less than offsetting June's 0.8% m/m growth and look for French industrial production (Friday) to rise by 0.4% m/m in July after two consecutive negative months.
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Yesterday the EURUSD tried to rally but found enough resistance at the 200-day moving average to reverse and closed near the low of the day, in addition managed to close below the previous day range, which suggests a strong bearish momentum.
The pair is trading below the 10 and the 200-day moving averages that are acting as a dynamic resistance and is trading above the 50-day moving average that is acting as dynamic support.
The key levels to watch are: a daily resistance at 1.1237, the 10-day moving average at 1.1180 (resistance), the 200-day moving average at 1.1176 (resistance), the 50-day moving average at 1.1142 (support) and a daily support at 1.1097.
Is the Euro set for a weaker period?
The Euro has had a harder time of things lately, losing ground against the Pound by almost four cents. Although most of this is due to Sterling strength as the U.K economy has seemingly avoided major economic problems post referendum so far, we still may well see the Euro face a tough period coming up due to various reasons.
Italian banks are more than in trouble… If you look deeply into the issue then the position that they are in is actually slightly worrying and I personally feel that we are not far away from seeing this hit the headlines soon which may lead to the Euro losing strength.
Angela Merkel recently lost her local election and actually came third which suggests that we have lots of political uncertainty coming up for Germany in the near future.
The Greek problem has still far from gone away, there are still questions over each payment due and I feel that heads are being placed in the sand on this current situation too.
On Thursday we have the ECB interest rate decision and press conference which may lead to further addition to their QE policy or fiscal changes and should the press conference afterwards have a negative tone to future expectations we may see the Euro have a tough day.
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ECB Meeting A Non-Event But A Delay Of QE Extension Would Be EUR Positive
Now that the summer trading period is behind us following yesterday’s Labor Day vacation in the US, the focus of financial market participants will be very much on the upcoming monetary policy events that may well shape the tone in the FX markets through the remainder of the year. The key announcements come later – the BoJ and the FOMC decisions on 21st September – but ahead of that on Thursday we have the ECB monetary policy announcement.
We had for some time been calling for an extension to the deadline for QE to be announced at the September meeting but our sense now is that the ECB may well delay that announcement until the October meeting or possibly the December meeting. As usual, the reaction in the markets and for the euro will very much depend on the tone of comments from President Draghi. What is clear is that an extension to the QE timeline is widely expected by the financial markets and as long as President Draghi makes clear that this is likely to be forthcoming rather than being abandoned, then the upside for the euro should be limited.
The abandonment of extending QE is highly unlikely and indeed, the data and continued subdued inflation points to the need for additional monetary easing. The ECB will also release updated forecasts and given the subdued growth in Italy and France and some recent disappointing business sentiment readings from Germany, the chances are that the ECB growth projection for 2017 might be cut modestly, from 1.7% to perhaps 1.6%. While the 2016 inflation forecast of 0.2% might be revised higher modestly (the average annual rate year-to-date is currently between 0.3-0.4%), the 2017 and 2018 levels should remain unchanged.
We certainly do not see the ECB meeting this week as being any catalyst for a notable move one way or the other and while a delay in announcing a QE extension might be EUR supportive, we expect President Draghi to be explicit enough in providing forward guidance that reassures market participants that further easing will be forthcoming. In addition, President Draghi will signal technical changes to address concerns over sovereign debt securities becoming too scarce for the ECB to meet its monetary policy commitments.
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Yesterday the EURUSD rallied with a wide range and closed near the high of the day, in addition managed to close above the previous day high, which suggests a strong bullish momentum.
The pair is trading well above the 10, 50 and the 200-day moving averages that are acting as dynamic supports.
The key levels to watch are: a daily resistance at 1.1460, a 61.8% Fibonacci retracement at 1.1347 (resistance), a daily support at 1.1237, the 10-day moving average at 1.1177 (support), and a daily support at 1.1097.