EURUSD, 60 min

Draghi’s promise to do “whatever it takes” to safeguard the Eurozone came with the promise of the OMT (Outright Monetary Purchases) and helped to end the debt crisis. Germany’s top court today finally gave its final clearance after initially referring it back to the EU’s top court, although with a caveat with the German Constitutional Court voicing concerns, but saying they were bound by the EU ruling, which argued that the plan contained sufficient safeguards to prevent the bond purchases from being disproportionate.

Germany’s Ifo institute said the ruling was a “pity”, because it is “obvious that the OMT primarily pursues the fiscal aim of maintaining credit access for highly indebted states”. The Ifo would have liked the court to set tighter rules for the Bundesbank’s participation in the program. The ZEW meanwhile said the ruling is “very Europe friendly”, saying the focus on the implementation of the program in the ruling, means government and parliament will need to watch how the OMT is implemented, but also that “financial markets can now relax”. Germany has been trying to safeguard the ECB’s prohibition of direct government financing, but it seems the pressure for a mutualisation of costs and risks is getting ever stronger and the critics see the OMT as one step in the direction of direct financing.

EURUSD is attracting some buying after the ruling was published but resistance levels are near. The nearest intraday resistance is at 1.1330 with the next intraday resistance at 1.1340. Intraday support at 1.1320. ECB’s Draghi will speak in about one hour’s time and might cause some extra volatility in the pair. I advise to reduce risk and when necessary to exit geared positions before an event that might move the markets in unpredictable ways.

Janne Muta

Chief Market Analyst

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EURUSD, 60 min

With the FOMC decision ahead of the markets are likely to stay on a wait and see mode. This means that EURUSD fluctuating between nearby minor support and resistance levels. Market participants are wary of taking strong views and large positions before they know what the US Fed is likely to decide. We don’t expect a rate hike today due to recent lousy NFP data and the UK’s EU referendum being so close and look for two rate hikes later on this year, with the first one possibly coming in July after UK voters have said no to Brexit.

The last time I was writing about EURUSD I suggested the market should be a sell either at or inside my Sell area of 1.1304 – 1.1320. Market rallied to 1.13027, turned and then moved through both my Target 1 and Target 2 areas.

Currently EURUSD is trending lower in 4h resolution and trading near resistance levels created by Monday’s lows ( 1.1230- 1.1240). If EURUSD manages to close above the resistance area, then it brings the channel high (currently at 1.1270) into play. However, with the FOMC statement ahead of us today markets are likely to be subdued and I’d be surprised if EURUSD started to break resistance levels. Therefore in the intraday picture I expect that the resistances will prevail while volatility will remain low until the FOMC statement. As the resistance has now been rejected I expect the pair to move to 1.1190 – 1.1200 range. In the longer term picture it seems that the USD is getting stronger and provided that the Fed Chair Yellen doesn’t come with any surprises we should see this trend continuing over the coming weeks.

Janne Muta

Chief Market Analyst

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Low inflation and expectations of further easing have been pressuring EURUSD. ECB’s Weidmann commented on inflation earlier today saying that expansionary policy currently justified, as low inflation is not just a consequence of low oil prices, but core inflation is also low. In what looked like comments to defend Draghi’s policy stance to the critical German audience, Weidmann said in Frankurt that “given these muted price prospects and expansionary monetary policy is current appropriate”, although he added that “you can have different opinions on the specific design of the unconventional measures”.

EURUSD has been violating support levels since it turned from the 1405 – 1415 resistance level I Identified in June 7^th report. Now the pair is oversold as per Stochastics (7.3.3) in the 4h chart and is trying to retrace some of the recent losses. I expect that this rally will be short lived and the market will turn lower after the buying interest fails. I’m seeing a resistance area between 0.382 and 0.5 Fibonacci retracement levels (1.1300 – 1.1322) while there is a support level at 1.2200 together with further support at 1.1134. This support is significant and has potential to stop the down move and turn EURUSD higher.

I am therefore looking for sell signals at or inside my Sell Area 1.1304 – 1.1323 with Target 1 at 1.1268 – 1.1280 and Target 2 at 1.1230 – 1.1244. Target 3 is at 1.1135 – 1.1285. For those interested in the potential up move to the Sell Area, I’m seeing support between 1.1250 and 1.1260. Please remember that this is not investment advice and that you should not be trading without proper understanding of risk management.

Janne Muta

Chief Market Analyst

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EURUSD, H1        

US wholesale sales rose 1.0% in April, with inventories up 0.6%. The former is a little below forecast, while the latter was stronger than expected. March sales were revised to a 0.6% gain compared to the 0.7% previously. March inventories were bumped up to 0.2% from 0.1%. April posted broadbased gains with only the auto inventory component posting the only decline for the major categories. The inventory-sales ratio slipped to 1.35 from 1.36, though that’s considerably above the 1.19 level from mid-2014, with such a steep spike typically only seen in recessions. The data will help refine GDP forecasts.

The dollar has traded mixed in the wake of the wholesale trade data out of the US EURUSD logged a six-day low of 1.1306, though the USDJPY only briefly rose before subsequently whipsawing and settling to near net unchanged levels. The interpolation of this is fresh lows in EUR-JPY, which is foraying into further into 39-month low territory. The Euro’s bad day continues.

Janne Muta

Chief Market Analyst

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Eurozone Q1 GDP was revised up to 0.6% q/q from 0.5% q/q reported initially, and Q4 last year was also revised higher to 0.4% q/q from 0.3% q/q. This means the trajectory is better than initially thought, which backs the ECB view that the recovery remains on track, even if Q1 data have to be taken with a pinch of salt and are likely to be followed by a relatively weak number for Q2.

The breakdown showed that private consumption growth accelerated strongly to 0.6% q/q from 0.3% in Q4 and was the biggest single contributor to the strong quarterly growth rate, which may partly be due to the Easter Effect. Fixed gross investment growth slowed, but still contributed 0.2% points, and government consumption a further 0.1% points, while net exports detracted 0.1% points. Again strong numbers, that will back the ECB’s wait and see stance, even if confidence indicators point to a slowdown ahead.

EURUSD has been reacting favorably to the numbers while the fact that Fed Chair Yellen didn’t put any specific date on the rate hike pressures the USD. Price has been moving higher from a support at 1.1360 and is now at minor resistance at 1.1380. The next significant resistance lies at 1.1445 while some minor resistance exits at 1.1404 – 1.1415.

Janne Muta

Chief Market Analyst

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EURUSD, Daily       

U.S. ISM non manufacturing index dropped 2.8 points to 52.9 in May after rising 1.2 points to 55.7 in April. This is the lowest since February 2014. The index was 55.9 a year ago. The business activity index fell to 55.1 from 58.8. The employment component plunged to 49.7 from 53.0, matching the lowest since February 2014. New orders fell to 54.2 from 59.9. New export orders tumbled to 49.0 from 56.5. Prices paid was one of the few components posting a gain, rising to 55.6 from 53.4. Another disappointing report.

The dollar extended lower following the factory orders and services ISM results, where the former missed slightly and the latter missed significantly. EURUSD has rallied to 1.1348, matching the May 17 peak, as USDJPY fell to 106.77, levels last seen on May 6.

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EURUSD, Daily       

Bundesbank cuts growth and inflation forecast, sees balanced risks. After the ECB published its updated set of staff projections yesterday, the Bundesbank released its projections for Germany, which were taking into account in the ECB calculations. The working day adjusted forecast for GDP was cut to 1.6% this year from 1.7% previously and the projection for 2017 was cut to 1.6% from 1.9%. 2018 growth is seen at 1.7%. At the same time, the inflation projections were cut to 0.2% this year and 1.5% next year from 1.1% and 2.0% previously. Sharp downward revisions with the Bundesbank blaming oil price variations and seeing balanced risks, but with inflation seen at just 1.7% in 2018, this means headline rates will remain below the 2% upper limit for price stability for a lengthy period.

Eurozone services PMI revised up to 53.3 from 53.1 and the composite revised up to 53.1 from 52.9. This means the services reading improved slightly over the month, and the composite now shows an acceleration on the overall pace of activity, compared to a slight deceleration suggested by the initial numbers. National data was mixed, and especially the fact that the Italian services PMI fell back into contraction territory at just 49.8 and the overall composite Italian PMI is barely holding above the boom-bust line at 50.8 is worrying. Bund futures recovered earlier losses on the weak Italian numbers and as the French readings were revised down, but are off highs as German and Eurozone numbers were revised higher. Uncertainty remains high but the mixed data will add to the disappointment over the ECB’s failure to announce new measures.

All quite on the forex front as markets hunker down ahead of the U.S. employment report showstopper, to which the possibility, or not, of a Fed rate hike on June 15 hinges. The G3 currencies are on the day so far showing less than a net 0.15% net change against one another. EURUSD has been locked in the mid 1.11s and USDJPY has taken root around 109.00, having recovered from the 18-day low at 108.49 that was seen during the Tokyo session.

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EURUSD, H1     

US Q1 GDP growth was revised up to 0.8%. This rise was from 0.5% but undershot our estimates thanks to the lack of an expected boost in consumption and a big downward bump in intellectual property investment, alongside a slightly smaller than expected $8.7 bln inventory boost. We saw the expected moderate hike in construction and a slight trimming in equipment spending, alongside a surprising $5.6 bln net export boost, leaving a small hike in final sales growth to 1.0% from 0.9%. We’ll keep our Q2 GDP growth estimate at 2.0% until we can review Monday’s income report. The Q1 GDP data still depict an economy suffering from weak global growth, a surging dollar, and falling oil prices that are disrupting the export and petro sectors and contributing to the inventory overbuild. We have business fixed investment declines as companies right-size costs to diminished nominal revenue in the face of price weakness and consumption restraint from cautious households. We expect diminishing global, petro, and inventory headwinds in Q2 as GDP growth bounces. EURUSD rallied a little to1.1172 on the release only to fall back to 1.1152, all eyes now on Mrs Yellen and her conversation with Professor Mankiw.

Janne Muta

Chief Market Analyst

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EURUSD, H1     

US new home sales surged 16.6% to a 619k annual rate in April, wow, the highest since January 2008, after a 1.3% drop in March to 531k (revised from 511k). February’s 519k was bumped to 538k for a net 44k upward revision. The months’ supply dropped to 4.7 from 5.5 (revised from 5.8). Regionally, sales were up in 3 of the 4 regions covered, paced by strength in the South and West, with the Midwest posting the only decline on the month. The median sales price bounced 7.8% to $321,100 from a revised $297,900 (was $288,000). That’s up 9.7% y/y. The strength in this report is a big surprise and should leave Treasury yields pressured higher. The dollar rallied marginally to session highs following the strong new home sales data. EURUSD edged under 1.1150 from 1.1165, as USD-JPY topped 109.90 from near 109.80.

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

EURUSD, H1     

The Eurozone continues to confuse with mixed data this morning; The flash Markit Eurozone PMI hit a 16-month low of 52.9 in the May composite reading of the manufacturing and services surveys. This was slightly down on the 53.0 reading for April, and contrasts the median forecast for an improvement to 53.3. Markit says that the indicator points to Q2 GDP growth of 0.3%, would be an slowdown from Q1’s 0.5%. From among the components of the survey, the rate of new work in fell to the lowest level in 17 months, while the confidence reading for the services sector fell to a 10-month low.

Meanwhile Germany the area’s largest and most economy Flash PMI data for May beat expectations, with the composite of the manufacturing and services surveys rising to a 54.7 in the headline reading, up from 53.6 in April and exceeding the Bloomberg median for a more modest rise to 53.9. Markit advises caution, however, as “there was evidence that some companies raised activity levels in order to process backlogged work, rather than as a result of rising new business,” also noting a slowing pace of improvement in new orders.

Technically, it looks like 1.1200 beckons with a lot of volatility around this significant round number. The Daily has 100 DMA at 1.1160 and 200 DMA below 1.1120. The 1 Hour chart appears a little range bound in a tight 35 pip range between 1.1230 – 1.1195. The generally weak EUR data has not helped the buyers this morning.

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.