The EUR/USD dropped to an intraday low of 1.1080 on Thursday, as the rate of the fall in the Yuan eased and markets turned their attention to the possibility of a US rate hike in September. The USD strengthened across the board after the US advance retail sales printed in line with the estimates, however, by late NY session the EUR/USD had recovered almost entire losses to end marginally negative at 1.1149.
Focus on the Q2 GDP data
The preliminary estimate of the German and Eurozone Q2 GDP is due for release today. An upbeat German GDP figure may see the spot make another attempt at 1.12-1.1210 as investors would anticipate and price-in a strong EU GDP figure. Consequently, profit taking after the EU GDP print could push the spot back to square one. Moreover, upbeat GDP figures may not add to the upside momentum as the common currency is likely to remain under pressure on account of the stability in the risk sentiment.
Furthermore, crude prices have extended losses, with WTI futures trading below the March low. The ECB's preferred inflation gauge is more sensitive to the crude prices. Therefore, drop in crude prices and the stability in the risk sentiment could weigh over the EUR. Meanwhile, the markets have also taken a note of the ECB accounts released on Thursday, which carried a slightly dovish tone – most probably in retaliation to the devaluation in the Yuan.
Technicals – Re-test of Thursday’s low
Euro’s long legged Doji candle on the daily chart increases the probability of the downside move after sharp recovery from the lows around 1.0850. However, bounce back from 1.1083 (38.2% of Mar-May rally) on Thursday indicates the spot could see short-term consolidation. On the 4-hour time frame, the spot once again struggling near 1.1169 (Fib Ext). Failure to take out the same is likely to push the EUR back to Thursday’s low at 1.1080. Only a daily close below 1.1080 would indicate a short-term top has been made and the spot could extend the drop to 1.1040 (100-DMA). On the higher side, a break above 1.1229 (23.6% of Mar-May rally) shall reinforce bulls and open doors for 1.1290-1.1300.
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