EURUSD: soon reversing

7月15日

Fed Chair Powell had a testimony in front of a US Congress during the previous week, which was the major weekly event, that the market was watching closely. Although the major interest of the market was indication when the Fed will start pivoting, still Chair Powell avoided to provide such information in order not to “influence the market”.

Core inflation rate in June eased to 3.4% in June on a yearly basis, and was standing lower from market forecast of 3.4%. At the same time, inflation was 3.0% in June again 0.1 percentage points lower from market estimate. On a monthly basis, core inflation was 0.1%, while the inflation was -0.1%/ Initial jobless claims in June were 222K, a bit lower from market expectation of 236K. Producers Price Index was increased by 0.2% in June, above market estimate of 0.1%, while core PPI was increased by 0.4% again higher from market forecast of 0.2%. Core PPI was standing at 3.0% on a yearly basis. Michigan Consumer Sentiment preliminary for July dropped to the level of 66.0, significantly below market forecast of 68.5. Michigan 5 year inflation expectations shows that US citizens are expecting inflation at 2.9%, which is a modest improvement from 3.0% expected during June this year.

Inflation rate in Germany final for June was 2.2% y/y in line with market estimate and 0.2 percentage points lower from previously posted. On a monthly basis, inflation was standing at 0.1%. There has not been further currently significant data posted for the Euro Zone. However, the ECB meeting is scheduled for Thursday, when the interest rate decision will be made.

Better than expected inflation figures in the US put pressure on the USD in expectations of a potential first rate cut by the Fed. During the week, eurusd pair was strongly oriented toward the upside, reaching its highest weekly level on Friday`s trading session, at the level of 1.090. The RSI reached the level of 66, however, a clear overbought side has not been reached. This leaves some space for the currency pair for a bit higher grounds in the coming period. Moving averages of 50 and 200 days continue to move as two parallel lines, however, there is still no indication of a potential cross in the coming period.

The currency pair will start the week ahead by testing 1.09 level. Charts are showing that there is some potential for the higher grounds, but it should not be expected to be some significant move, it would rather be up to 50 pips to the upside. Charts are indicating potential for a short term reversal. Again some 50 pips to the downside is highly probable, while some potential stands for testing of the support line at 1.08. It should be considered that the ECB interest rate decision is scheduled for Thursday, so some volatility is probable around and at this date. Market is currently forecasting no rate cut this month, so any surprises from the ECB side could trigger a higher volatility.

Important news to watch during the week ahead are:

Euro: Economic Sentiment Index for July for the Euro Zone and Germany, Core inflation rate final for June for the Euro Zone, ECB interest rate decision,
USD: Retail Sales for June, Building Permits preliminary for June