Euro Falls After More Disappointing Data From Germany

The euro declined slightly today as more signs of weakening of the European Union economy emerged. Data released by the German statistics office showed that producer prices rose by 0.3% in August. This was a significant decline from July’s 1.1% and the consensus estimates of 0.6%. On a MoM basis, the PPI declined by -0.5% in the month after rising by 0.1% in July. The PPI is an important number because it is a leading indicator of inflation. In recent months, data from Germany has been relatively weak, which has led to speculation that the economy will slide into a recession. There are several reasons for the current weakness. First, the auto industry appears to have reached a peak. Second, the global trade war has affected the German manufacturing sector by making inputs more expensive. Third, Brexit has been a major drag for the economy as well.

The Japanese yen rose today even after weaker-than-expected CPI data. The national CPI rose by just 0.3% in August after rising by 0.5% in July. Traders were expecting the number to rise by 0.6%. On a YoY basis, the national CPI increased by 0.5%, which was slightly lower than the previous increase of 0.6%. This number came a day after the Bank of Japan signaled that it will intervene and likely lower interest rates in October. The Japanese economy has been a good example that the so-called Philips Curve does not always work. The principle of the curve says that inflation tends to rise with falling unemployment rate. This has not happened given that the Japanese economy is currently at full employment. Part of Japan’s population is aging, which leads to lower rate of consumption.

Global stocks were generally positive after the latest action by the People’s Bank of China (PBOC). The bank lowered interest rates by 25 basis points to 4.20%. The central bank has been on a rate easing cycle for the past few years. The bank has also taken action to support the economy by flooding the economy with money. These actions have contributed to the criticism of the Fed by Donald Trump who argues that it is not cutting rates fast enough. The Chinese rate cut came less than two days after the Federal Reserve slashed interest rates by 25 basis points. Meanwhile, data from Canada showed that retail sales in July increased by 0.4% after declining by -0.1% in June. The core retail sales, which excludes the volatile food and energy products declined by -0.1% after rising by 0.9% in the previous month.

EUR/USD

The EUR/USD pair declined slightly after the weak data from Europe. The pair is now trading at 1.1042, which is slightly below the lower line of the symmetrical triangle pattern shown below. The price is also slightly below the 14-day and 28-day moving averages while the RSI has moved slightly lower. It is now at 42. However, the volume remains relatively lower, which means that while the pair might continue moving lower, traders should be cautious about a false breakout.

USD/JPY

The USD/JPY pair declined slightly as traders reacted to the weak inflation numbers from Japan. The pair is currently trading at 107.97, which is slightly below the weekly high of 108.50. On the four-hour chart, the pair’s 14-day and 7-day moving averages appear to be crossing over in a bearish manner. The RSI too has been on a downward trend from a high of 83 to the current 43. While the downward trend could continue, the pair will likely move down slightly to test the 61.8% Fibonacci Retracement level of 107.48.

USD/CHF

The USD/CHF pair declined to retest the important support level shown in red below. The pair is now trading at 0.9914, which is slightly above this support. As shown on the four-hour chart below, the pair has been bouncing along this channel since August 14. This price is also below the 14-day and 7-day moving averages while the RSI has fallen to 46. The pair will likely move up to retest the resistance of 0.9980.