EUR/USD – Euro stems slide, German CPI matches forecast

EUR/USD is almost unchanged in the Thursday session. Currently, the pair is trading at 1.1678, up 0.04% on the day. On the release front, German Final CPI slipped to 0.1% in June, down from 0.5% a month earlier. Still, the reading matched the estimate. Eurozone Industrial Production rebounded with a strong gain of 1.3%, edging above the forecast of 1.2%. The ECB released the minutes of its June policy meeting. In the U.S, the focus is on consumer inflation. CPI and Core CPI are expected to remain pegged at 0.2%. Unemployment claims is expected to fall to 226 thousand. On Friday, Germany releases the Wholesale Price Index and the U.S publishes the UoM Consumer Sentiment report.

With the ECB poised to wind up its asset-purchase program in September, attention is now focusing on the timing of a rate hike by the central bank. In June, the ECB said it would keep hold rates at current levels “through the summer” of 2019, but this wording is vague, leaving the precise timing open to debate. Does this phrase mean that that the ECB will wait until the October meeting, or could the ECB raise rates during the summer, if conditions warrant a hike? It would seem unlikely that policymakers will raise rates before the asset-purchase program is terminated, but the ECB has not shut the door on such a scenario. The ECB is forecasting that inflation will reach 1.7% in 2o18, which is not far from its target of just below 2 percent. If oil prices were to surge and send inflation higher, there will be more pressure on policymakers to raise rates, which would be bullish for the euro.

Investors remain uneasy about the tariff battle being waged between the U.S and its major trading partners, particularly China. After the U.S and China imposed tariffs on each other of some $30 billion, the Trump administration has raised the ante, threatening to hit China with further tariffs on $200 billion worth of Chinese goods. China cannot retaliate in kind, since it does not import that amount of goods from the U.S. Still, the Chinese can take steps which will make it more difficult for U.S companies to do business in China. The U.S dollar has benefited from the recent trade battles, and if this trend continues, the euro could be facing some substantial headwinds.

EUR/USD Fundamentals

Thursday (July 12)

• 2:00 German Final CPI. Estimate 0.1%. Actual 0.1%

• 2:45 French Final CPI. Estimate 0.1%. Actual 0.0%

• 5:00 Eurozone Industrial Production. Estimate 1.2%. Actual 1.3%

• All Day – Eurogroup Meetings

• 7:30 ECB Monetary Policy Meeting Accounts

• 8:30 US CPI. Estimate 0.2%

• 8:30 US Core CPI. Estimate 0.2%

• 8:30 US Unemployment Claims. Estimate 226K

• 10:30 US Natural Gas Storage. Estimate 55B

• 13:01 US 30-year Bond Auction

• 14:00 US Federal Budget Balance. Estimate -92.3B

Friday (July 13)

• 2:00 German WPI. Estimate 0.4%

• All Day – ECOFIN Meetings

• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 98.1

EUR/USD Technical

EUR/USD was flat for most of the Asian session. The pair has shown limited movement in European trade

• 1.1637 is providing support

• 1.1728 is the next resistance line

Further levels in both directions:

• Below: 1.1637, 1.1553 and 1.1434

• Above: 1.1728, 1.1829, 1.1910 and 1.2026

• Current range: 1.1637 to 1.1728