|

EUR/USD bears move closer to the edge of the abyss after FOMC minutes and ahead of a slew of key US data

  • EUR/USD is breaking down technically as we head into key US data events. 
  • FOMC minutes prop up the hawkish sentiment and the US Dollar. 

EUR/USD fell by some 0.25% on Wednesday, weighed by a weaker-than-forecast eurozone PMI and PPI, risk-off tones surrounding China noise and by the Federal Open Market Committee minutes that have cemented the current hawkish sentiment.

The US Dollar has been climbing of late and jolted higher in late trade in New York ahead of more critical US data releases Thursday and Friday. Firstly, worries that trade frictions between China and the US could escalate kickstarted a move up in the Greenback this week. China made an abrupt announcement on Monday of controls from Aug. 1 on exports of some gallium and germanium products which has ramped up a trade war with the United States and could potentially cause more disruption to global supply chains. ''Analysts have described Monday's move as China's second - and bigger - countermeasure in the long-running US-China tech fight, coming after it banned some key domestic industries from purchasing from US memory chipmaker Micron (MU.O) in May,'' Reuters wrote on the matter.

Eurozone inflation expected to fall

Domestically, eurozone data disappointed and follows a mixed inflation report that was released at the end of June whereby the headline beat expectations, but while the data accelerated 5.5% in June it was lower than May’s 6.1% increase. The Core HICP inflation rose to 5.4% YoY in June, compared with May’s figure of 5.3%. But markets had forecasted a 5.5% clip. On Wednesday, the eurozone reported soft final June services and composite PMIs.:

Both headline services and composite PMIs fell four ticks from the preliminary to 52.0 and 49.9, respectively.  ''This was the first sub-50 reading for the composite since December and confirms our view that the eurozone is slipping into recession,'' analysts at Brown Brothers Harriman explained. 

''Looking at the country composite readings, Germany fell two ticks from the preliminary to 50.6 and France fell one tick to 47.2.  Italy and Spain reported for the first time and their composites came in at 49.7 and 52.6, respectively. Both fell more than two full points from May.  Italy has joined France below the key 50 boom-bust line and it’s only a matter of time before other nations do as well,'' the analysts added and explained that eurozone inflation expectations continue to fall:

''The monthly ECB survey showed inflation expectations for the next 12 months fell to 3.9% in May vs. 4.1% in April and 5.0% in March.  For three years ahead, inflation expectations remained steady at 2.5% vs. 2.9% in March.  The ECB will be happy to see the drop and should allow the doves to retain control of the narrative at the July 27 meeting''

Markets are expecting the ECB to hike 25bp two more times and World Interest Rate Probability, WIRP, suggests odds of a 25 bp hike are near 90% this month.

Hawkish FOMC minutes props up the US Dollar

Meanwhile, in the US, the Federal Open Market Committee (FOMC) released the minutes of its June meeting, triggering a rise in the Greenback. According to the document, some officials favoured a rate hike at the meeting but went along with a pause. The minutes showed a division among FOMC members. “Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable for considering the appropriate stance of monetary policy”, the minutes noted.

More here: FOMC minutes: Some officials favoured a 25bps hike at the June meeting

Now, the focus is on the US jobs data where the nation will report on layoffs on Thursday, Jobless Claims, ISM Services and JOLTS ahead of Friday's Nonfarm Payrolls report. This slew of fresh data would be expected to overshadow today's FOMC minutes and offer clues as to the next move from the Fed where there is a possibility of two more hikes this year.

''US payrolls likely remained above-trend in June, but still representing slowing after ~300k expansions in Apr-May. We also look for the UE rate to drop a tenth to 3.6% and for wage growth to print 0.3% MoM,'' analysts at TD Securities said.

Other than this week's events, traders will then be looking ahead to next Wednesday's Consumer Price Index.

EUR/USD and US Dollar charts

The DXY index, as illustrated above, has seen a move higher on the FOMC minutes into an area of potential resistance. The Euro bulls will want to see the 103.30s support and trendlines break to the downside in the coming sessions which could help prop the Single Currency around the US data events:

On the other hand, EUR/USD is headed to the edge of the abyss around what could prove to be daily weak lows that guard a move below 1.0850 in a broken-down market that leaves the 1.07 area vulnerable for the days ahead. 

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

More from Ross J Burland
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD declines toward 1.1700 on solid USD recovery

EUR/USD turns south and declines toward 1.1700 on Wednesday. A solid comeback staged by the US Dollar weighs heavily on the pair, as traders look to USD short covering ahead of US CPI on Thursday. However, the downside could be capped by hawkish ECB expectations. 

GBP/USD slides toward 1.3300 after softer-than-expected UK inflation data

GBP/USD has come under intense selling pressure, eyeing 1.3300 in the European session on Wednesday. The UK annual headline and core CPI rose by 3.2% each, missing estimates of 3.5% and 3.4%, respectively, reaffirming dovish BoE expectations and smashing the Pound Sterling across the board. 

Gold clings to modest gains above $4,300

Following Tuesday's volatile action, Gold regains its traction on Wednesday and trades in positive territory above $4,300. While the buildup in the USD recovery momentum caps XAU/USD's upside, the cautious market stance helps ithe pair hold its ground.

Bitcoin, Ethereum and Ripple extend correction as bearish momentum builds

Bitcoin, Ethereum, and Ripple remain under pressure as the broader market continues its corrective phase into midweek. The weak price action of these top three cryptocurrencies by market capitalization suggests a deeper correction, as momentum indicators are beginning to tilt bearish.

Ukraine-Russia in the spotlight once again

Since the start of the week, gold’s price has moved lower, but has yet to erase the gains made last week. In today’s report we intend to focus on the newest round of peace talks between Russia and Ukraine, whilst noting the release of the US Employment data later on day and end our report with an update in regards to the tensions brewing in Venezuela.

AAVE slips below $186 as bearish signals outweigh the SEC investigation closure

Aave (AAVE) price continues its decline, trading below $186 at the time of writing on Wednesday after a rejection at the key resistance zone. Derivatives positioning and momentum indicators suggest that bearish forces still dominate in the near term.