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EUR/USD: risk reversal, data and fundamental call for lower levels, target 21-D SMA

  • 50-D SMA/1.1722 highs  have capped the bulls, outlook looking less bullish / 21-D SMA eyed at 1.1653.
  • Comparing recent US data positive outcomes to worsening EZ.

On a positive day overall for the euro, it has taken a slight knock on the back on inline US retail sales earlier on that arrived with positive revisions that bode well for GDP. EUR/USD is currently trading at 1.1708, down from the day’s high of 1.1725, (we have the 61.8% at 1.17222) and holding above the lows of 1.1675.  

EUR/USD has been testing the rising 10-hr SMA at 1.1707 with a recent low of 1.1705. US retail sales came as 0.05%, in line with 0.5% expectations vs the prior +0.8% that was revised to +1.3%. The US Empire manufacturing index for July was also a beat, arriving at 22.6 vs 21.0 expected.  

EUR/USD entered the NY session +0.17% with huge expiries for the 10am NY cut which were between 1.1650-1.1700 which were underpinning the pair around the data. However, since then, we have seen that downside play out and the 1.17 handle is pressured; (risk reversals are off the highs but retain a firm implied vol bias for EUR puts
which suggests that dealers still see greater downside spot risk).  

EUR/USD fundamentally bearish

Fundamentally, the risks are also skewed to the downside given the divergence between the Central Banks and the economic performance in the US ‘Trumping’ that of the EZ currently.  Last week, for instance, the ZEW surveys surprised with a decline in German current conditions (72.4, exp. 78.1, prior 80.6) and both Eurozone and German expectations (Germany -24.7, exp. -18.9, prior -16.1; EZ-18.7, prior -12.6), reflecting slippage across all sectors. This brokes the recent streak of German/pan-EU data beating estimates – (The -24.7 on the index of German investor expectations of economic growth is the lowest since 2012).

The week ahead

For the week ahead, we have EZ CPI and the calendar for the US holds Chair Powell’s testimony to Congress on 17 July (Tue) as well as Industrial production (Tuesday), NAHB housing market index (Tuesday), Housing starts (Wednesday), Fed Beige Book (Wednesday), Initial jobless claims (Thursday) and Philly Fed survey (Thursday).  

Regarding Chair Powell’s testimony to Congress tomorrow, the Federal Reserve released its semiannual Monetary Policy Report last week ahead of the event and, overall, the report did not seem to give us anything more substantially new in terms of developments for the trajectory of near-term policy that we have not already heard in recent rhetoric from Fed members, so Powell’s testimony to Congress may not be much of a game changer.  

EUR/USD levels

EUR/USD technicals lean bearish on the hourly charts with a break of the 10-hr SMA and bears intent of a test of the 50-hr SMA at 1.1674 as RSI turns south. On a wider scale, RSIs are stabilising pointing to a neutral outlook. The price is still below the 10-D SMA and the 61.8 Fib of 1.1853 1.1508. eyes are on the 21-D SMA at 1.1653. Below the neutral 1.16 handle, eyes are on  the 1.1508-10 May-Jun lows, 1.15 barriers/ stops while the 1.1448/1186/0863 comes as the  016-18 rising Fibo levels. The 200-week moving average is at 1.1390 while 1.1186/1.0814 comes as the 61.8% and 78.6% retracement.   However, on the flipside, analysts at Scotiabank note that the EUR has  once again been attempting a break above its 50 day MA (1.1713) and they look to an extension of near-term gains toward 1.1750 and last week’s high just below 1.18

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