The common currency continued to consolidate for the fifth straight session on August 12, helping the price action not to fall further and post their first weekly gains in the last three weeks.

US-China Trade war, Brexit uncertainty, Global economy slowdown on top of these, the anticipation of recession are the key driver for the recent appreciation in Swiss Franc and Japanese Yen along with the euro backed by the carry trade. Besides, we still expect more legroom in bond yields. Germany’s 30-year bond yields drop below ZERO for the first time and 10-year Bund close at a record low of -50bps.

Thomas Harr at Danske bank said, “In my view, a global recession is still not the base case as the US, China and Germany all have the policy space to react to a sharp downturn.”

Looking ahead, the risk-off market mood will continue with a little apparent catalyst to the upcoming trade talks in Washington and the Italian government crisis.

Regarding Italian election HSBC said, “The head of the upper house of the Italian parliament has re-summoned the house from recess tomorrow, August 13, to set a date for a no-confidence vote on the Italian Prime Minister, which was called last week by Italy’s co-ruling Lega.”.

In terms of macro data from last week, the EZ Services PMI and Germany Industrial production was down. Germany economy continues to look weak

  • EZ Services PMI fell to 53.2, from 53.6 in June
  • Germany June industrial production was down by 1.5%

Data preview: Looking ahead, traders focus on German ZEW and EA Q2 GDP numbers. Besides, it will be quiet in terms of US data releases.

Regarding Q2 GDP Danske Bank estimate 0.2% (q/q). In a research note, the bank said: “we expect an unchanged euro area GDP growth figure from the advance estimate (0.2% q/q), but with the first release of the drivers we will assess if investments are still holding up amid the global uncertainty.”

TECHNICAL OVERVIEW

The common currency continued to rally from early August low’s on continued risk-off signals. The recent lift in EURUSD came after President Trump announced that a 10% tariff on 300bn$ in goods from China, which will be effective from September 01.

The weak daily RSI and the bearish turnaround of the oscillator should cap the rallied in the days.  Against this backdrop, the pair is seen to consolidate for another one/two days before providing a clear direction. Note that only a daily close above 100MA/50MA located between 1.1230-1.1235 would lessen the risks of a dip back to important support at 1.1100.

Support located at 1.1160 below here focus shifts to 1.1100 before retracing fully back to 1.1050 and 1.1000 levels.

 

View: As long as 1.1285-1.1320 is resistance zone wait for a new leg down towards 1.1100 and 1.1050.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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