U.S. equity markets had their worst one-day fall in 2019 on Monday, after China devalued its currency to a 10-year low against the dollar. The move prompted the U.S. to label China as a “currency manipulator”. China also retaliated against the U.S. pledge to hit Chinese products with a new 10% tariff, as Beijing said it would no longer purchase any U.S. agricultural products. The yen continued to attract safe-haven flows, and has jumped 2.8% since the end of July.
In the U.S., the ISM Non-Manufacturing PMI slowed to 53.7 in July, its lowest level in almost three years. This is indicative of weaker expansion in the services sector. The week wrapped up with inflation data, which remains at low levels. The producer price index was unchanged at 0.2%, matching the forecast. The core release declined by 0.2%, its first decline of the year.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German Final CPI: Tuesday, 6:00. Investors are interested in inflation levels in Germany, the eurozone’s largest economy. The initial reading for German CPI came in at 0.5%, and the second reading is expected to confirm this forecast.
- German ZEW Economic Sentiment: Tuesday, 9:00. This key confidence indicator has dropped sharply and slipped to -24.5 in July, slightly below the forecast of -22.1. Another decline is expected in August, with an estimate of -27.8. The eurozone indicator came in at -20.3 in July and the estimate for August is -21.7.
- German Preliminary GDP: Wednesday, 6:00. The Germany economy grew by 0.4% in the first quarter, matching the estimate. It looks to be a different story in Q2, with an initial estimate of 0.1%.
- French Final CPI: Wednesday, 6:45. Inflation remains weak in the eurozone’s second-largest economy and posted a gain of 0.2% in June. The markets are braced for a decline of 0.2% in July.
- Eurozone Flash GDP: Wednesday, 9:00. The eurozone economy grew by 0.2% in Q1, according to the initial estimate in July. The second estimate is expected to confirm this gain.
EUR/USD Technical analysis
Technical lines from top to bottom:
We start with resistance at 1.1621. This line has held since the first week in October.
1.1515 was a high point at the end of January. 1.1435 was a low point at the beginning of February.
1.1390 was a stepping stone on the way up in late January and capped EUR/USD earlier.
1.1345 is next. 1.1290 has held in resistance since the first week of July.
Close by, 1.1270 was a double-bottom in December 2018.
1.1215 (mentioned last week) is the next resistance line.
1.1119 switched to support early in the week as EUR/USD posted strong gains.
1.1025 was a cap back in May 2017.
1.0950 is next.
1.0829 has held in support since April 2017. It is the final support level for now.
I remain bearish on EUR/USD
The eurozone economy remains weak, and key indicators are predicting a soft second quarter for Germany, the largest economy in the eurozone. With global trade tensions escalating, there could be some headwinds ahead for the euro.