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by Charalambos Pissouros

USD Continues to Tumble, Eurozone’s GDP and CPIs on the Agenda

The dollar continued to trade on the back foot against most of the other G10 currencies, even as the financial community traded in a risk-off fashion. Perhaps investors are getting rid of their greenbacks due to signs that the momentum of the US economic recovery is slowing down. As for today, the main events on the agenda are Eurozone’s preliminary GDP for Q2 and the CPIs for July.

Investors Continue to Abandon USD Even During Risk Off

The dollar continued to slide against all but two of the other G10 currencies. It gained only against CAD, while it was found virtually unchanged versus NOK. The main gainers were GBP, EUR, and NZD in that order.

USD performance G10 currencies

The fact that the greenback stayed on the back foot suggests that markets may have traded in a risk-on manner yesterday. However, the fact that the oil-related CAD and NOK weakened as well, points otherwise. Thus, once again, in order to get a better picture with regards to the broader market sentiment, we will turn our gaze to the equity world. There, major EU indices were a sea of red, with the negative investor morale rolling into the US session as well. Although Nasdaq finished 0.43% up, both the DJIA and the S&P 500 slid 0.85% and 0.38% respectively. As for today, during the Asian morning Friday, Japan’s Nikkei lost 2.81%, while at the time of writing, China’s Shanghai Composite is virtually unchanged, and Hong Kong’s Hang Seng is down 0.40%.

Major global stock indices

EU shares continued to tumble yesterday after the German GDP data showed that Eurozone’s economic powerhouse contracted by more than expected in Q2, with automakers taking a hit after Germany’s Volkswagen revealed a first-half operating loss and after France’s Renault posted a record net loss during the first half of this year. The fact that US President Trump raised the possibility of delaying November’s presidential election may have also weighed on investors’ appetite, which combined with the historic slump in the US GDP for Q2 and the rising initial jobless claims for last week, may have kept the Dow and the S&P down as well.

It seems that the dollar is losing its safe-haven appeal, as it is now sold even during periods of risk aversion. Perhaps investors are getting rid of their greenbacks due to signs that the momentum of the US economic recovery is slowing down. With infected cases from the coronavirus staying in acceleration mode in the US, several states have stopped or even reversed their reopening, which according to data is dampening the economic recovery. With the US economy plunging during the second quarter, more recent data, like the initial jobless claims, suggest that the third quarter may also be marked by deep economic wounds.

As far as the markets are concerned, following yesterday’s slide in the equity world, we will turn sidelined again as we see the risk for the correction to continue for a while more. Even the technicals support that view, as several indices, like DAX and Euro Stoxx 50, broke below their recent short-term uptrend lines. Japan’s Nikkei fell below the 22000 key support zone and now looks to be headed towards the low of June 15th, near 21365. Only the US indices are holding onto their recoveries, with the S&P 500 still holding above its psychological support zone of 3200. What’s more, the fact that Apple, Amazon, Facebook, and Alphabet all reported better-than-expected earnings, suggests that Wall Street may open with a positive gap today.

FTSE 100 – Technical Outlook

The FTSE 100 index continues to trade within a range, roughly between the 5993 and 6320 levels. Although yesterday the price did fall below the lower end of that pattern, it wasn’t able to remain below that level. This morning, we are seeing that the index is once again flirting with that 5993 hurdle, however, we will stay neutral until we see a daily candle closing outside that range.

If, eventually, the FTSE 100 closes a daily candle below the lower side of the range, at 5993, that may spark more interest among the bears, as such a move would increase the chances of seeing further declines. The index might then drift to the 5888 obstacle, or even the 5755 zone, marked by the low of May 15th, where a temporary hold-up may occur. There is a chance to see a small rebound, but if the price continues to trade below the 5993 barrier, another round of selling could be possible. If this time, the 5755 hurdle fails to provide support and breaks, the next potential support area could be at 5659, marked by the lowest point of May.

Alternatively, a break through the upper bound of the range, at 6320, may open the door to some higher areas, as such a move would confirm a forthcoming higher high. The index may then climb above the 200-day EMA and test the highest point of June, at 6513. If the uprise doesn’t stop there, the next possible resistance zone to consider might be at the 6600 level, marked by the low of March 3rd and 5th.

FTSE 100 daily chart technical analysis

Euro-traders Await Eurozone’s GDP and CPIs

As for today, we have more Q2 GDP data due to be released, and that’s from the Eurozone as a whole. We also get the bloc’s CPIs for July.  GDP is expected to have shrunk 11.2% qoq following a 3.6% contraction in Q1, while the headline CPI is expected to have ticked down to +0.2% yoy from +0.3%. No forecast is currently available for the core rate, which stood at +0.8% yoy in June. That said, with the German CPI sliding into negative waters, we would consider the risks surrounding the Eurozone print as tilted slightly to the downside.

Eurozone vs German CPIs inflation

At its last meeting, the ECB did not alter its monetary policy, but stayed ready to adjust all its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner. At the press conference following the decision, President Lagarde urged EU governments to take action in battling the coronavirus pandemic as soon as possible, with EU leaders eventually reaching consensus last Tuesday morning. The euro has been on a rally mode recently, on hopes that with a fiscal aid, the Eurozone is now likely to recover faster, and the return of the July PMIs into expansionary territory increased those hopes. Thus, it may need much-worse-than-expected GDP and CPI numbers to revive fears with regards to a halt in the economic recovery, and thereby speculation for more stimulus by the ECB. If the actual prints come close to their forecasts, despite weaker than the previous ones, we believe that the euro could continue to gain, especially against the dollar, which continues to tumble even as the overall market is trading in a risk-off fashion.

EUR/AUD – Technical Outlook

Although we are seeing a bit of retracement to the downside this morning, EUR/AUD continues to balance above a short-term tentative upside support line taken from low of July 22nd. As long as the rate remains above that upside line, we will stay positive with the near-term outlook.

If the pair moves a bit more south, it may find a good support area near the 1.6454 hurdle, marked by the current low of today. Slightly below it runs the aforementioned upside line, which might also provide a bit of support and halt the fall. If the bulls decide to take advantage of the lower rate, this could help bring EUR/AUD back to the current high of this week, at 1.6546, a break of which would confirm a forthcoming higher high, potentially attracting more buyers into the game. That’s when we will target the 1.6585 level, which is the highest point of June, where the pair might stall temporarily.

On the other hand, if the previously-discussed upside line breaks and the pair drops below the 1.6428 zone, marked by an intraday swing low of July 30th, that could spook the remaining bulls from the field, allowing more bears to step in. EUR/AUD may then drift to the 1.6387 obstacle, a break of which could open the way to the 1.6340 level. That level marks the low of July 29th.

EUR/AUD 4-hour chart technical analysis

As for the Rest of Today’s Events

From the US, we have personal income and spending, alongside the core PCE index, all for June. Personal income is forecast to have declined 0.5% mom after falling 4.2% in May, while personal spending is expected to have slowed to +5.5% mom from +8.2%. With regards to the core PCE index, it is forecast to have held steady at +1.0% yoy. We also have the final UoM consumer sentiment index for July, which is expected to be revised down to 72.9 from 73.2.

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