- ECB's Minutes cooled down hopes for a sooner rate hike in the EU.
- US inflation boosted expectations of a faster pace of hikes in the US.
- The FX Poll of experts shows things will get worse before they get better.
The dollar resumed its advance in a week where the trade war ups and downs, once again led the way. Trade tensions escalated mid-week on the back of headlines indicating that the US was planning to launch a list worth $200B goods, on where to impose a 10% tariffs. High yielding assets came under selling pressure, while the usual safe-havens, the yen, and gold, lost their attraction, leaving investors the buck as the preferred choice.
Two factors aided dollar's rally against its European rival: US inflation was firmly up, fueling speculation of higher rates, while the ECB's Monetary Policy Meeting Accounts reiterated the dovish stance from a month ago, cooling down hopes that the EU Central Bank will pull the trigger earlier-than-expected, as a report suggested a few days ago.
US inflation recorded its largest increase in over six years last June, according to the official figures, with the core yearly inflation up 2.9% after rising 2.8% in May. Inflation and the possibility of higher rates were what made the yen an unattractive safe-haven, while woes between the US and China, this last, among the world's largest consumers of base metal, weighed on gold.
The EUR bear pretty well with dollar's demand, until the release of ECB's Minutes. According to the document, the support to the decision was "unanimous," opposing to the mentioned report that said that some policymakers believed that rising rates by the end of 2019 will be "too late."
As for the trade war, US Secretary Mnuchin tried to pour some cold water on the matter, saying that the measures taking by the government, and the retaliation measures applied by China and other economies won't affect the local economy. But he also said that talks with Beijing had "broken down" and is up to China to take the next step. It also opposes to what central bankers' think, as lately, al statements include a line about how global trade tensions pose a risk to economic growth.
Even further, Fed's Powell said that trade tensions could have an effect on inflation and growth. If the economic growth slowdowns, lowering rates is then, a possible tool to respond to such a scenario. The market doesn't believe it would be likely at the time being, but the risk is there, and trade war developments will have the final world.
The upcoming week will start with US Retail Sales data on Monday, seen posting a modest advance in June. Fed's Powell will testify before the Congress, probably the most relevant event of the week. In Europe, the only figure of relevance will be June inflation, to be out next Wednesday.
EUR/USD technical outlook
The EUR/USD pair is comfortable below the 1.1700 figure, having reverted these last few days the gains from the previous two weeks. The previous advance stalled between the 23.6% and the 38.2% retracement of the April/May decline, leaving the dominant bearish trend intact. The weekly chart shows that, while the 100 SMA and the 200 SMA remain below the current level, the 20 SMA gained further downward strength well above the current level, now around 1.2000. Technical indicators in the mentioned chart have lost directional strength. as is the seventh consecutive week that the pair has been trading below the mentioned 38.2% retracement at 1.1855, but remain well into negative territory, leaning the scale toward the downside.
In the daily chart, the technical outlook is neutral-to-bearish, as the pair is moving back and forth around a directionless 20 DMA, while the 100 DMA accelerated its decline below the 200 DMA far above the current level. The Momentum indicator bounced from its mid-line and maintains its bullish slope, but remains below the previous week high, while the RSI heads south at around 44.
The 1.1590/1.1620 area is the immediate support, with a break below it opening doors for a downward move toward 1.1510, the yearly low. Below this last, the next probable bearish target is the 1.1440/60 price zone. Resistances are at 1.1720, the first Fibonacci level from here, followed by 1.1790, the weekly high. Beyond it, 1.1855 the mentioned 38.2% retracement comes next
The FXStreet forex poll of experts shows further falls in the short-term with upwards moves in the medium and longer terms. Positioning is slightly lower in comparison to the previous week.
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