EUR/USD’s consolidation was short-lived. After coming up to 1.3480 yesterday (7/24) the pair stalled. It after Jobless Claims dropped to a 10-year low. Today, we saw durable goods orders improve in June, faster than expected.
The strong US data proved s too much for the EUR/USD to make a stand at this point, and it extended below the mini-consolidation as it did last week.
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Fundamental Factors Next Week:
As the USD takes the lead in the EUR/USD’s direction, next week will also be US data – dominant. The key data point to monitor will be:
Advance GDP for Q2. We know Q1 saw an annualized rate of -2.9%. If GDP in Q2 can be above 3.0%, the Q1 GDP will likely be distant memory. In this scenario, the USD strengthens, and the EUR/USD continues to rinse and repeat. However, if GDP reading disappoints for Q2, look out for a broad USD-sell off that will give the EUR/USD a chance to pull back.
The FOMC will be meeting, and will have this Q2 GDP data as it votes for monetary policy. The market will gauge whether the FOMC has moved its rate hike time-line ahead of the mid-2015 projection. The recent rise in the USD seems to suggest traders are at least pricing in that the rate hike won’t be pushed later due to the Q1 GDP numbers. If there are no signs of a rate hike before mid-2015, then USD strength might have to consolidate.
Eurozone CPI is estimated to have grown an annualized rate of 0.5% in July. Draghi has said that he expected this 0.5% reading is probably the bottom, but so far we have not seen inflation push above. If it drops below 0.5%, we should expect a very sharp decline in the EUR across the board. A faster inflation rate should help EUR consolidate in the short-term and claw back some of its recent losses.
The US Non-Farm Payroll report on Friday can add clues for the rate hike wager. Economists expect a 230K reading for June after a strong 288K reading in for May. A strong reading above 250K should add USD-strength, and drag the EUR/USD lower. However, if the reading misses 230K, and is closer to 200K, the EUR/USD has a better chance consolidating, or going for a short-squeeze.
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Downside and Upside Risks:
When you look at the daily EUR/USD chart, you can see that there is downside risk toward the 1.3295-1.3317 lows from Nov. 2013. To the upside, we have to first monitor the 1.35-1.3515area which was June’s consolidation support.
If EUR/USD price continues higher above the 1.3515 area., don’t worry about the break of the falling trendline. The bearish outlook is still in play even if the sharp falling trendline breaks. we should monitor 1.3575-90 area, which was a key support/resistance pivot in July. A break above 1.36 will be needed to introduce the bullish outlook.
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