- Persistent Brexit-related uncertainty continues to weigh on the British Pound.
- The USD gets a boost from upbeat retail sales data and added to the selling bias.
- Bears take some breather ahead of the 1.2400 mark and Powell’s scheduled speech.
The GBP/USD pair now seems to have entered a bearish consolidation phase and was seen oscillating near the lower end of its daily trading range, or multi-month lows.
The sentiment surrounding the British Pound remained fragile amid persistent Brexit uncertainties and failed to gain any respite from Tuesday upbeat UK wage growth data, with a goodish pickup in the US Dollardemand exerting some additional downward pressure.
The already stronger greenback got an additional boost following the release of stronger-than-expected US monthly retail sales figures for June, while possibilities of some trading stops being triggered below the key 1.2500 psychological mark further aggravated the bearish pressure.
However, highly oversold conditions on hourly charts helped limit find some support just ahead of the 1.2400 round figure mark and the Fed Chair Jerome Powell’s scheduled speech, which will be looked upon for fresh clues over the central bank’s monetary policy outlook and provide a fresh impetus.
Technical levels to watch
- EUR/USD loses further ground, trades closer to 1.12.
- German Economic Sentiment surprised to the downside.
- US Retail Sales expanded 0.45 MoM in June.
Further downside pressure is now pushing EUR/USD closer to the critical support at 1.1200 the figure.
EUR/USD lower on USD-buying
The pair keeps losing the grip in the first half of the week and is now flirting with the vicinity of the 1.1200 handle following auspicious prints from the US docket and the subsequent continuation of the buying interest around the buck.
In fact, US Retail Sales expanded more than expected at a 0.4% MoM during June, while Core sales also expanded 0.4% inter-month, bettering initial estimates. Further US data saw Export Prices and Import Prices contracting at a monthly 0.7% and 0.9%, respectively during last month.
Earlier in the day, the ZEW Survey showed the German Economic Sentiment deteriorated further for the current month, while the same gauge in the broader euro area showed a marginal relief.
Later in the day, US Industrial Production and Manufacturing Production are next on the docket seconded by the NAHB index, TIC Flows and Business Inventories. Markets’ focus, in the meantime, will also be on Fed’s Powell speech at an event in Paris.
What to look for around EUR
The inability of the pair to clear the important resistance area in 1.1280/90 has encouraged sellers to return to the markets, triggering the ongoing leg lower. Furthermore, occasional bullish attempts in spot should be seen as a short-lived against the backdrop of renewed and increasing speculations of another wave of monetary stimulus from the European Central Bank in the near term, via interest rate cuts (July/September), the resumption of the QE programme and changes in the forward guidance. Also weighing on the currency, the dovish stance from the ECB appears reinforced by the recent appointment of ex-IMF’s C.Lagarde to succeed M.Draghi. On the macro scenario, the slowdown in the region looks unremitting and it also reinforces the current accommodative attitude of the central bank.
EUR/USD levels to watch
At the moment, the pair is losing 0.37% at 1.1215 and faces the next support at 1.1193 (monthly low Jul.9) followed by 1.1181 (low Jun.18) and finally 1.1106 (2019 low May 23). On the flip side, a break above 1.1286 (high Jul.11) would target 1.1321 (200-day SMA) en route to 1.1412 (high Jun.25).
- The barrel of WTI regains some shine after recent sell-off.
- The $60.00 mark caps the upside so far today.
- API weekly report on inventories next of note later today.
Prices of the American benchmark for the sweet light crude oil are edging higher on Tuesday, managing to regain some ground lost albeit still trading in sub-$60.00 levels.
WTI now looks to API
The barrel of the West Texas Intermediate appears to have recovered the smile on Tuesday following the sharp sell off at the beginning of the week. In fact, prices of WTI dropped markedly on Monday after production in the Gulf of Mexico has started to slowly return to normalcy following the recent storm, alleviating supply concerns.
In the meantime, the US-China trade dispute remains in limbo although the threat over the global demand for oil remains intact and is preventing a serious bull run in crude oil prices.
Later in the day, the American Petroleum Institute (API) will publish its weekly report on US crude oil inventories ahead of tomorrow’s official report by the DoE.
What to look for around WTI
Recent price action around WTI showed decent contention emerged around the $59.00 mark, which is at the same time reinforced by the 100-day SMA. However, traders failed to push the barrel of WTI further north of the key $61.00 mark during the end of last week and yesterday, as supply concerns have subsided somewhat.. Supporting prices, however, emerges the geopolitical factor, with Iran and the US in centre stage, the recent extension of the OPEC+ deal to curb output until the end of Q1 2020, tight US oil markets and the so-called ‘Saudi put’.
WTI significant levels
At the moment the barrel of WTI is gaining 1.04% at $59.90 and a surpass of $60.86 (monthly high Jul.15) would expose $62.44 (monthly high May 20) and then $66.46 (2019 high Apr.23). On the downside, immediate contention emerges at $57.64 (200-day SMA) seconded by $55.91 (low Jul.3) and finally $50.54 (monthly low Jun.5).
Declining odds for no-deal Brexit favors the GBP/USD pair’s recovery.
The UK employment numbers and Carney’s speech will join the US Retail Sales and Fed Chair’s comments to offer fresh impulse.
Receding fears of hard Brexit help the GBP/USD pair to recover previous losses while taking the rounds to 1.2520 ahead of the London open on Tuesday. Investors may now keep an eye over monthly jobs report and BOE Governor Carney’s speech at G7 for fresh clues. Additionally, trade/political news report, the US Retail Sales and the Fed Chair’s comments will also be closely examined for near-term market direction.
The Bloomberg reported the latest EU-UK Brexit talks as constructive backed by the EU’s readiness to avoid no-deal Brexit while the BBC story covering Sir Oliver Letwin, a senior Tory member, also reduced odds of no-deal Brexit.
Elsewhere, the candidates for the UK Prime Minister’s (PM) race continue to lure Tory voters during their latest public appearances, the last one will be on Wednesday in London. While the frontrunner Boris Johnson keeps his promise to let exit the EU on October 31, Jeremy Hunt highlights his ability to discuss a fresh trade deal with the EU. However, both the candidates turned down chances of a general election before the Brexit.
Looking forward, the economic calendar will be on the watch for the UK’s May month Average Earnings and Unemployment Rate, coupled with the June month Claimant Count Change, that will precede the US Retail Sales data for June. Also, comments from the US Federal Reserve Chairman Jerome Powell and the Bank of England (BOE) Governor Mark Carney at the French G7 Presidency 2019 will also direct near-term market momentum.
The UK’s Claimant Counts may decline to 18.9K from 23.2K prior whereas Average Earnings Excluding Bonus (3 months to a year) is likely increasing to 3.5% from 3.4%. Further, the British Unemployment rate isn’t expected to deviate from 3.8%. On the other hand, US Retail Sales can flash 0.2% MoM growth versus 0.5% prior while Retail Sales Control Group is likely declining to 0.3% from 0.4% (revised) earlier.
Pair’s recent recovery remains doubtful unless it clears 21-day exponential moving average (EMA) level of 1.2585, that holds the key to a late-June low around 1.2665. As a result, the latest lows surrounding 1.2480 and 1.2430 may keep flashing on the bears’ radar.
EUR/USD bulls need a break above the 21-day MA.
EUR may drop if EU lawmakers reject Germany’s Ursula von der Leyen.
A below-forecast US retail sales data could bode well for EUR/USD.
EUR/USD’s corrective bounce from the July 9 low of 1.1193 seems to have stalled with the 21-day moving average (MA) proving a tough nut to crack since July 11.
As of writing, the pair is trading at 1.1262 and the 21-day MA is located at 1.1255.
Germany’s Ursula von der Leyen will face a make or break vote today in her quest to be the European Commission’s first female leader.
Von der Leyen said on Monday that she would support giving the UK more time to negotiate its exit from the European Union. Further, she has pledged more ambitious carbon dioxide emissions targets, a more growth-oriented fiscal policy and taxing big tech companies, according to Reuters.
So, the common currency may come under pressure if lawmakers reject von der Leyen. The EU leaders would then need to come up with another candidate in a month.
Von der Leyen is scheduled to address the 751-member European Parliament at 07:00 GMT today, followed by a debate and a secret ballot at 16:00 GMT.
Apart from the politics, EUR/USD could take cues from German Zew surveys, due at 09:00 GMT and the US retail sales, scheduled for release at 12:30 GMT.
The EUR/USD pair will likely close above the 21-day MA today if the US data disappoint expectations, bolstering the expectations of aggressive easing by the US Federal Reserve. The central bank is widely expected to cut rates by 25 basis points later this month. The move, however, has been priced in by the markets.
The retail sales figure is expected to show the consumer spending rose 0.2% month-on-month in June, having risen by 0.5% in the preceding month.
Risk reversals on NZD/USD, a gauge of calls to puts on the Kiwi, jumped to the highest level since January 2018 on Monday, indicating investors are positioning for further strength in New Zealand’s currency.
One-month risk reversals have risen to -0.475, a level last seen on Jan. 30, 2018. The gauge stood at -0.825 on July 9.
The negative number indicates the implied volatility premium for put options (bearish bets) on the NZD is higher than that for calls. So, a rise from -0.825 to -0.475 indicates the demand or premium claimed by NZD puts has dropped significantly over the last six days.
As of writing, NZD/USD is trading at 0.6735, having found acceptance above the 200-day moving average of 0.6709 on Monday.
USD/JPY has created a falling wedge on the 4-hour chart.
The MACD is reporting a bullish divergence.
A key indicator on USD/JPY’s 4-hour chart is flashing early signs of a bullish reversal, however, so far, the pair has failed to pick up a strong bid.
The widely followed moving average convergence divergence (MACD) histogram has produced higher lows over the last three trading days, contradicting the lower lows on the price chart.
That bullish divergence indicates the pullback from 108.99 has run out of steam. The outlook, however, remains neutral, as the pair is still trapped in a falling wedge.
A break above 108.09 would confirm a falling wedge breakout and open the doors to a retest of 108.99. On the downside, a break below 107.80 would expose the lower edge of the wedge, currently at 107.42.
As of writing, the pair is trading at 107.94, having hit a high of 108.09 earlier today.
US Dollar Index extends consolidation below the 97 mark.
10-year US Treasury bond yield clings to last week’s gains.
Subdued trading action is likely to continue on Monday.
After closing the previous week with a loss of nearly 50 pips, the USD/JPY pair started the new week in a relatively calm manner and has been moving in a relatively tight range below the 108 mark. As of writing, the pair was trading at 107.84, losing 0.05% on a daily basis.
The broad-based USD weakness last week didn’t allow the pair to turn north. On the other hand, however, the strong rebound witnessed in the 10-year US Treasury bond yield, which generally shows a strong correlation with USD/JPY, helped the pair limit its losses.
On Monday, the US Dollar Index is moving sideways below the 97 handle, consolidating the losses it suffered following FOMC Chairman Powell’s cautious remarks about the economic outlook last Wednesday during his semi-annual testimony before the Congress. At the moment, the US Dollar Index is posting modest daily gains at 96.75. Meanwhile, the 10-year T-bond yield is moving sideways above the 2.1% handle, preserving its recent gains and keeping the pair’s losses in check.
In the second half of the day, the Federal Reserve Bank of New York Empire State Manufacturing Survey will be looked upon for fresh impetus. NY Fed President Williams is scheduled to deliver a speech as well.
Further upside could see AUD/USD testing the mid-0.7000s in the next weeks, according to FX Strategists at UOB Group.
24-hour view: “The strong gains in AUD that hit a high of 0.7025 last Friday came as a surprise. While the rapid rise appears to be running too fast, too soon, there is scope for AUD to test the major 0.7050 resistance. For today, a sustained rise above this level is unlikely (next resistance is at 0.7070). On the downside, a break of 0.6985 would indicate that the current upward pressure has eased (minor support is at 0.7000)”.
Next 1-3 weeks: “While there is no change to our view from last Friday (12 Jul, spot at 0.6975) wherein AUD is expected to “trade in an undecided manner within a broad 0.6910/0.7050 range”, the rapid pace of which AUD move towards the top of the range was not exactly expected (high of 0.7025 during NY hours on Friday). For now, we continue to hold the same view unless AUD break above the major 0.7050/70 resistance zone. At this stage, the risk for a clear break of this zone is not high but it would continue to rise if AUD can continue hold above 0.6960 within these few days”.
Risk-on wave grips Europe, aids WTI recovery from weak China GDP-led drop.
Gains remain capped as US refineries remain operational despite Storm Bary.
Easing Iranian geopolitical tensions and USD uptick to keep recoveries in check.
WTI (futures on Nymex) is seen enjoying good two-way price movements so far this Monday, having dipped to 59.85 on sluggish Chinese growth numbers in the Asian trades.
The bulls managed to fight back control in the European session amid a renewed risk-on wave, as reflected by higher Treasury yields and US equity futures. Further, the European equity markets are recovering the early losses.
However, the latest reports hinting towards easing geopolitical tensions surrounding the Iranian nuclear commitments and a broad-based US dollar recovery raise doubts on the strength of the latest oil-price recovery.
A spokesman for the Atomic Energy Organization of Iran noted that Tehran is reducing its commitments to the Joint Comprehensive Plan of Action (JCPOA) in order to launch a diplomatic mechanism to save the nuclear deal.
Moreover, the further upside could remain capped amid no immediate supply risks, as the US refineries, in the face of Tropical Storm Barry, continued to operate despite flood threats. Meanwhile, markets continue to weigh in the slowest expansion in the Chinese economy over the last 27 years and its impact on the crude oil demand.
Focus now shifts towards the US weekly crude supply reports and fresh trade/ geopolitical developments for the next direction on the prices.