EUR/USD sticks to gains in the 1.1180/75 band

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  • EUR/USD navigates a narrow range around 1.1180.
  • Daily gains appear limited below 1.1200 the figure.
  • EMU flash Q2 GDP came in at 0.2% QoQ and 1.1% YoY.

EUR/USD keeps trading without a clear direction in the middle of the week, although the upside remains unable to re-test/surpass the 1.1200 barrier for the time being.

EUR/USD attention on yields, trade

The following Tuesday’s moderate sell off, the pair is now looking to stabilize in the lower bound of the weekly range in the 1.1170/60 region.

Positive news from the US-China trade front has bolstered the initial downbeat mood in spot via a stronger buck, although the renewed pick up in the ‘flight-to-safety’ mood helped to recover ground somehow afterwards.

The global FI space continues to be in centre stage against the backdrop of firm risk-aversion in the world markets. In fact, the yield spread differential between the US and the German 10-year reference has receded to the 220/225 pts in light of all-time lows in German 10-year Bund and the drop in US 10-year note to levels last seen in September 2016 below 1.6%.

Data wise today, flash Q2 GDP figures in Germany now see the economy contracting 0.1% on a quarterly basis and the economic activity in the broader euro area expanding 0.2% from a quarter earlier. Further data noted Industrial Production in Euroland slumped 1.6% on a monthly basis during June.

What to look for around EUR

The reluctance of EUR to edge lower in the current risk-off environment could be reflected in ‘repatriation’ forces currently at play as well as the potential funding stance of the currency. Italian politics has resurfaced as a source of uncertainty as of late and is expected to weigh on the sentiment sooner rather than later. Sustained bullish attempts in the pair still look flimsy amidst ECB’s preparations for a fresh wave of monetary stimulus (most likely to be announced in September), including a potential reduction of interest rates, the re-start of the QE programme and a probable tiered deposit rate system. In the meantime, the unremitting deterioration of the economic outlook in the region and the lack of traction in inflation are seen capping extra gains and are also lending extra support to the dovish stance of the ECB.

EUR/USD levels to watch

At the moment, the pair is advancing 0.07% at 1.1178 and a breakout of 1.1232 (55-day SMA) would target 1.1282 (high Jul.19) en route to 1.1291 (200-day SMA). On the other hand, the next down barrier emerges at 1.1161 (low Aug.12) seconded by 1.1101 (monthly low Jul.25) and finally 1.1026 (2019 low Aug.1).

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