EURUSD: nearing overbought

The Producers Price Index reached 0.1% in July for the month, below 0.2% forecasted by the market. Core PPI was standing at 0% for the month, lower from market estimate of 0.2%. PPI on a yearly basis was standing at 2.2% in July, again lower from the market estimate of 2.3%. This indicator represents one of indicators which are pointing to the course of inflation in the US, which increased optimism among market participants that the inflation is indeed slowing down and that the Fed might make its first rate cut in September this year. At the same time, the posted Inflation rate for the US in July confirmed further decrease in inflation pressures, reaching 2.9% on a yearly basis, and again below market estimate of 3%. Core inflation was standing at 3.2% in July on a yearly basis. The Retail Sales were up by 1% in July on a monthly basis, significantly above forecasted 0.3%. The Building Permits preliminary for July were standing at 1.396M a bit lower from forecasted 1.43M. Michigan Consumer Sentiment preliminary for August was 67.8, modestly above forecasted 66.9. The Michigan 5 year inflation expectations remained at 3%, without a change from the previous month.

The ZEW Economic Sentiment Index for the Euro Zone reached the level of 17.9 in August, which was significantly lower from 35.4 market forecast. The same indicator also dropped in Germany for the same period, reaching 19.2 from estimated 32. This was a huge surprise for the markets, indicating that the EU economy continues to struggle for growth, in an environment of increased interest rates. The second estimate of the GDP growth within the Euro Zone for Q2 remained unchanged at 0.3% for the quarter and 0.6% on a yearly basis, without any change from market forecast. At the same time, industrial production reached negative balance at -3.9% on a yearly basis in July, which was below market estimate of -2.9%.

The inflation figures posted for the US in July supported market optimism that the Fed might cut interest rates at their September FOMC meeting, in which sense, USD continued to lose strength. The currency pair was moving toward the upside during the whole week, reaching the level of 1.1028 on Friday. Highest weekly level was at 1.1048, but only on one occasion on Wednesday. The RSI reached the level of 66. Although the indicator did not reach the clear overbought market side, there is high potential that it might happen during the week ahead, which would indicate potential for a short term reversal. Moving averages of 50 and 200 days continue to move as two parallel lines, with a low distance between them, indicating that a potential cross might come anytime soon.

The market reached the level of 1.10 for the eurusd currency pair, which needs to be tested in the coming period. A short reversal is quite possible during the week, however, it should not be expected to have some significant move to the downside. Charts are pointing that levels around 1.0950 might be tested in the coming period. Return to the 1.090 is not indicated at this moment on charts. It should be also considered that the Jackson Hole Symposium will be held on Thursday and Friday, where Fed Chair Powell is expected to hold a speech on Friday. Markets will quite closely watch his speech, expecting a clear sign that rate cuts are coming. Some volatility might be expected during his speech.

Important news to watch during the week ahead are:
Euro: Inflation Rate for the Euro Zone in July, HCOB Manufacturing PMI flash for August for Germany, the ECB Monetary Policy meeting accounts,
USD: FOMC Minutes, Jackson Hole Symposium will be held on Thursday and Friday, August 22-23rd, Fed Chair Powell speech after the Symposium
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