• ECB Forum on Central Banking, Portugal
• Data wise June EZ PMIs are in focus
• Every rally has been capped
A dovish ECB send the euro and bund yields lower, flip side hawkish Fed failed to send the tradable dollar index (KTM: USDX) above the double top and the US 10TY well anchored below 3.00%. Lack of follow up euro selling makes a certain degree of comfort to the traders.
On the dollar front, Trade Tensions between US and China are back to the center stage again, and we expect it will remain the key driver over the coming weeks.
The ZEW Indicator of Economic Sentiment for Germany recorded a decrease of 7.9 points in June 2018 and now stands at minus 16.1 points. This is the lowest reading since September 2012 and well below the long-term average of 23.3 points.
In Europe, following last week’s ECB dovish meeting, traders remain focus to the ECB Forum on Central Banking, Sintra, Portugal, 18-20 June> On top of the ECB forum, June EZ PMIs are in focus. We expect June EZ PMIs will come around May levels.
“Flash PMI manufacturing has disappointed every month this year, undershooting expectations by an average of 0.9.” reported by Nordea.
“Survey and official data have diverged in terms of the health of the euro area manufacturing sector. An analysis of historical comparisons indicates that the official numbers are likely overstating the extent of recent weakness, and production continues to expand, though all sources suggest the growth trend has cooled.” According to Chris Williamson, Chief Business Economist, IHS Markit.
The central bank policy divergences should see the EURUSD remain in a range between 1.1450-1.1850 in Q2. Whereas looking beyond Q2, we continue to focus on the 50.0% and 61.8% fib reactions, if 1.1400 lost.
Before retracing to the 2017 support zone 1.1500-1.1450 the price traced out a medium-term price top near 1.2540-1.2555 between Jan-Feb 2018 via the formation of a double top pattern. The recent shift in sentiment rallied to 1.1850 attracted selling interest with supports between 1.1500-1.1450 its 50.0% fib reaction of the 2017-2018 rally. Below here, the focus will move down to 61.8% retracement at 1.1200.
The recent short-term rallies should be considered counter-trend with a lower highs format. The near-term resistance moved down from 1.2000 to 1.1850 levels with solid support sitting at 1.1450.
The daily RSI study has been making a higher low pattern whereas the oscillator is remaining bearish.
Overall, stays capped at 1.2000 and maintains a lower high resistance at 1.1850 with support at 1.1500 and 1.1450. Noting that the 200MA (weekly) finds at 1.1390. With a higher low RSI, we could expect a short-term rally to 1.1650 and 1.1690 levels. A move beyond 1.17 could re-visit the interesting descending trendline (below chart), but chances are remote.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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