In recent technical analyses, it was mentioned that the gains of the euro currency pair against the dollar EUR/USD may be subject to sale at any time. This is because the energy future in Europe is still under threat, in addition to the clear contrast between the United States of America and the euro area in the economic performance and the future of monetary policy tightening. After the Eurodollar’s gains towards the resistance level 1.0293, it retreated to the vicinity of the support 1.0150 today.

Goldman Sachs lowered its forecast for the EUR/USD, citing a challenging winter for the Eurozone economy which they now expect to slip into recession. The forecast comes as the euro recovers from its July entry below $1.00, but it would be too early to believe that a major recovery is forming now, analysts say.

“The next six months seem likely to be tough for the eurozone, which is likely to keep EUR/USD close to parity,” says Zach Bundle, Goldman Sachs FX Analyst. The forecast comes alongside Goldman Sachs economists’ predictions that the Eurozone economy will fall into recession in the second half of the year. Accordingly, Bundel added: “The recent move in the EUR/USD pair reflects the changing growth outlook, and is likely to extend somewhat further than that.”

What is Driving EUR/USD Decline?

The EUR/USD exchange rate has been declining since May 2021 when it peaked at 1.2254. The currency pair has trended steadily lower since then, reaching as low as 0.9952 in July 2022 before recovering somewhat to 1.0233 where we find it today. “The recent recovery in EUR/USD is not fully justified by the news flow and the market still has some work to do to price our new fundamental outlook,” the analyst added.

It is widely accepted that a list of major drivers has been driving the decline in the euro exchange rates in recent months. The dollar started a cyclical rally in May 2021 as the markets started to raise the level of the Fed that would start exiting QE and eventually raise interest rates.

The depletion of dollar liquidity associated with such moves supports the dollar.

Meanwhile, the European Central Bank’s reticence to raise interest rates despite rising inflation means that the yield paid on US bonds and other monetary assets is much higher than that paid to investors with equivalent assets in the eurozone. Although the European Central Bank has raised interest rates, the difference with the US is still stark.

The latest point of the euro’s weakness has been due to the war in Ukraine and the associated high energy prices, which have greatly affected the eurozone’s economic production potential and consumer health. Wall Street economists say energy demand will have to be dramatically reduced by a combination of high prices and government policies if the eurozone is to get through the winter, even if its storage tanks are full.

Meanwhile, commodity analysts at Goldman Sachs warned that weather-related uncertainty will rise particularly in the first half of winter. A symptom of the energy challenges facing the Eurozone is the surge in prices for base-load electricity in Germany for one year on Tuesday, August 2nd. Prices have risen to over €400 per megawatt-hour for the first time ever. For context, the current rate is about 1,000% higher than the 2010-2020 average of €41.1/MWh.

Euro forecast against the dollar:

According to the performance on the daily chart, if the EUR/USD price settles below the 1.0110 support level, the bears will move strongly to the parity price or below it.  The pressure factors on the euro are still continuing and increasing. After the current performance, the technical indicators changed their direction to the downside. On the other hand, the bulls should move towards the resistance levels at 1.0330 and 1.0400 to be the opportunity for a stronger upward shift.

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The pair will likely keep rising as investors target the key resistance at 1.0650. 

Bullish View

• Buy the EUR/USD and a take-profit at 1.0650.
• Add a stop-loss at 1.0450.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0480 and a take-profit at 1.0390.
• Add a stop-loss at 1.0550.

The EUR/USD pair rallied to the highest level since May 11th ahead of the upcoming Euro area consumer inflation data. It rose to a high of 1.0560 as investors price in a more hawkish European Central Bank (ECB). The pair has risen by almost 20% from its lowest level this year.

EU Inflation Data Ahead

The euro rose against the US dollar after more ECB officials pointed to more interest rate hikes. In a statement last week, the head of the German Central Bank made the case of a rate hike in July. Further, in a separate statement, Christine Lagarde said that she was leaning towards a rate hike in July.

The loudest voice came on Tuesday when the head of the Dutch central bank said that the bank should consider a 0.50% rate increase in July. If this happens, it will be the biggest single interest rate hike that the bank has implemented ever.

Therefore, the EUR/USD pair will react mildly to the latest inflation data that will come out today. Economists expect the data to show that the bloc’s CPI rose to 7.5% in April while core CPI rose to 3.5%.

While these numbers are important, they will likely be similar to the preliminary data that Eurostat published two weeks ago. As such, they will not have a major impact on the EUR/USD pair.

The pair also rose even after the relatively strong US retail sales numbers. The data revealed that the headline retail sales rose to 8.19% year-on-year and by 1.0% on a month-on-month basis. These numbers were better than what analysts were expecting. Core retail sales rose by 0.6%., signaling that consumer spending was rising.

Other data showed that the country’s manufacturing and industrial production numbers rose by 0.8% and 1.1% in April.

EUR/USD Forecast

The EUR/USD pair invalidated the bearish flag pattern that was forming on the four-hour chart. Now, it has managed to cross the 25-day and 50-day moving averages while the Relative Strength Index (RSI) is approaching the overbought level. The Stochastic Oscillator moved above the overbought level.

A closer look shows that the pair retested the tip of the triangle pattern shown in pink. Therefore, the pair will likely keep rising as investors target the key resistance at 1.0650. The alternative scenario is where the pair drops below 1.0440.

Gold futures ended the last trading week with a rise around the level of $ 1892 an ounce. The lowest price for gold was after raising the US interest rate to the level of $ 1851 an ounce.

The highest price of gold during the past week was $ 1910 an ounce, gold prices recorded a weekly loss. Despite recent sharp losses, gold prices rebounded after the Federal Reserve confirmed that it will not raise US interest rates by more than 50 basis points at each policy meeting.

Gold prices are still down 0.74% over the past week, trimming their YTD gains to less than 3%.

In the same way, prices of silver, the sister commodity to gold, struggled to maintain its momentum. Silver futures fell to $22.37 an ounce. The price of the white metal recorded a weekly decrease of 1.82%, adding to its decrease since the beginning of the year 2022 to date by 4.22%.

Precious metals faced sharp losses ahead of this month’s Federal Open Market Committee (FOMC) meeting, expecting Eccles building to be more robust in terms of interest rates. However, the institution emphasized that it will not press anything beyond 50 basis points during each FOMC meeting this year. The gold market is generally sensitive to the high interest rate environment as it raises the opportunity cost of holding non-yielding bullion.

This has led some market analysts to believe that gold prices are concerned with real interest rates that take inflation into account. Therefore, while the fed funds rate is now in the range of 0.75% and 1%, real rates are still in the subzero zone due to massive inflation.

Most US Treasuries markets were inflated by the end of last week, with the 10-year yield rising 7.4 basis points to 3.14%. One-year bond yields fell 2.3 basis points to 2.011%, while 30-year yields increased 7.7 basis points to 3.238%.

The US currency ended last week’s trading with a slight decrease, as the US Dollar Index (DXY) decreased by 0.09% to 103.66, from its opening at 103.56. Overall, the DXY US dollar index recorded a weekly gain of 0.7%, which increased the rise since the beginning of the year 2022 to date to more than 8%. In general, a stronger profit is bad for dollar-priced commodities because it makes them more expensive to buy for foreign investors.

In other metals markets, copper futures fell to $4.2485 a pound. Platinum futures fell to $947.40 an ounce. Palladium futures fell to $2,032.00 an ounce.

On the economic side, the XAU/USD gold price is trading influenced by the results of the US economic data, as the US jobs data for April outperformed the expected number of jobs at 391 thousand with a higher statistic at 428 thousand. However, the country’s unemployment rate failed to fall to the expected level of 3.5%, remaining at 3.6%. On the other hand, average hourly wage growth for the month was unchanged (monthly) at 0.3%, missing the median forecast of 0.4% while growth (on an annual basis) matched the estimate of 5.5%. Earlier in the week, the US ADP’s employment change for the month of April also came in below 395K with the number of jobs at 247K.

According to the technical analysis of gold prices: in the long term and according to the performance of the hourly chart, it appears that the price of XAU/USD is trading within the formation of a descending channel. This indicates a slight short-term bullish momentum in the market sentiment. Therefore, the bulls – the bulls – will look to maintain short-term control over the price of gold by targeting profits at around $1,896 or higher at $1,909 an ounce. On the other hand, the bears will target short-term profits at around $1,868, or lower at $1,856.

In the long term, and according to the performance on the daily chart, it appears that the yellow metal is about to complete the formation of the bearish reversal XABCD pattern. This indicates an attempt by the bears to control the price of gold in a highly volatile market. Therefore, they will target downside earnings around $1,827, or lower at $1,781. On the other hand, the bulls will target potential rebound profits at around $1,934 or higher at $1,980.

While the overall trend is bearish, a relief rally is expected to happen in the near term.

Bullish View

• Buy the AUD/USD and set a take-profit at 0.7300.
• Add a stop-loss at 0.7150.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 0.7220 and a take-profit at 0.7150.
• Add a stop-loss at 0.7300.

The AUD/USD slipped to the lowest level since March 16th as the US dollar rally continued amid fears of a more hawkish Federal Reserve. The pair is trading at 0.7245, which is about 5.50% below the highest level this week.

Australian Dollar Pressured

The Aussie has been under intense pressure in the past few weeks for a number of reasons. First, after soaring during the start of the Russian invasion of Ukraine, commodity prices have cooled a bit recently. The Bloomberg Commodity Index has dropped by more than 5% from its highest level in April this year. This is notable since the Australian dollar is often seen as a leading commodity currency.

Second, the US dollar has been in a strong bullish trend in the past few days. The dollar index, which tracks the greenback against a basket of currencies, has jumped to the highest level since 2020. This rally accelerated last week after Jerome Powell hinted that the Fed will be more aggressive in the coming months. Now, analysts expect that the Fed will deliver a 0.50% rate hike in May and then start its quantitative tightening (QT) policy.

Third, the AUD/USD pair has retreated as investors eye the upcoming Australian election. It will pit Scott Morrison and Andrew Albanese of the labor party. While most analysts expect that Scott Morrison will win his second term, most of them believe that the election will be close. Still, it is unclear how these results will impact the Australian dollar.

This week, the Australian dollar will react to the latest inflation data scheduled for Wednesday. Analysts expect these numbers to show that inflation rose from 3.5% in Q4 to 4.6% in Q1 of this year as energy prices rise. On a QoQ basis, they expect that the CPI rose from 1.3% to 1.7%.

AUD/USD Forecast

The AUD/USD pair has been in a strong bearish trend in the past few days. On the four-hour chart, the pair’s Bollinger Bands have widened, signaling that there is intense volatility. At the same time, the Relative Strength Index (RSI) has moved to the oversold level and is still pointing downwards. The Stochastic oscillator has also moved to the oversold level.

Therefore, while the overall trend is bearish, a relief rally is expected to happen in the near term. If this happens, the next key resistance level to watch will be at 0.7300.

 

BNB/USD fell to a low of nearly 395.9000 in trading yesterday, but then staged a reversal which challenged important short term resistance near 420.000 early today.

BNB/USD has produced quick trading conditions and speculators should continue to be braced for more volatility in the near term. Binance Coin acts as an important barometer within the digital asset world because the cryptocurrency is used as a utilitarian coin within the Binance exchange system. Over the weekend BNB/USD suffered a negative trend downwards, which essentially built into a rather strong selloff in early trading yesterday.

A low of nearly 395.9000 was demonstrated Monday, which came within sight of depths displayed on the 11th of April when BNB/USD traded near the 391.9500 mark. One month lows were seen on the 20th and 21st of March when Binance Coin approached the 386.5000 vicinity. Having hit a high of nearly 460.0000 on the 5th of April, the ability of BNB/USD to provide speculators with volatility is a sure thing. Traders must treat BNB/USD as a speculative cryptocurrency like all others, and conservative amounts of leverage should be practiced.

The broad cryptocurrency market also turned in plenty of tests regarding support ratios in early trading yesterday. Then reversals higher were suddenly produced yesterday, and prices in the broad market continue to hold early near key resistance levels. BNB/USD intriguingly is within sight of the 420.0000 once again, which it tested on the 15th of April, before touching the level again this morning.

The failure to break through this resistance level should be considered. If BNB/USD is able to consolidate and remain within sight of the this resistance level in the short term and the broad cryptocurrency market remains stable, speculators may be tempted to believe upside potential lurks for Binance Coin in the short term.

The current price of BNB/USD has stumbled slightly and is near the 416.7000 as of this writing and traders need to consider their perceptions. If the 416.0000 level is able to maintain its support ratios and hold back a tide of nervous selling, BNB/USD could see another move higher and a retest of early morning resistance levels may be demonstrated. Traders should consider quick hitting positions in the short term, because the broad cryptocurrency market may produce more volatility today if trading volumes increase as speculators return from their holidays.

Bearish traders who believe the move higher early this morning ran into resistance which will prove durable, may be tempted to actually sell and look for a retest of lower values seen yesterday. Caution is advised for all short term speculators, because market conditions appear ready to deliver sudden bursts of energy today.

Binance Coin Short Term Outlook:

Current Resistance: 418.2400

Current Support: 416.3500

High Target: 426.9500

Low Target: 405.7900

Eurostat revises GDP, employment figures; EUR weakens against the USD; Eurozone economy has a lot of ground to regain.

Eurostat recently revised down the third quarter gross domestic product figures, showing that the eurozone economy grew less than previously expected, though at its fastest rate since 1995. Nevertheless, the GDP still decreased less than expected in the three months since June.

In quarterly terms, the GDP climbed by 12.5 percent (quarter-on-quarter), below the previous figure of 12.6 percent and against expectations. In yearly terms, the figure was also revised down at 4.3 percent in the third quarter, though this was better than expectations of 4.4 percent.

The agency attributed the third quarter rebound to an increase in both consumer spending and business investment. Among the best-performing countries were France, Spain and Italy, all of whom registered double-digit GDP increases.

Employment rose by 1 percent in the third quarter, better than the expected 2.8 percent decline. Eurostat commented that while the impact of stimulus measures certainly aided employment levels, changes in employment hours were more prominent.

Despite the good news, the outcome of the Brexit negotiations remains uncertain, with both sides unable to agree on key issues.

The EU has signaled its willingness to continue with the negotiations after the deadline is reached, even as the British Prime Minister plans to meet with the European Commission President to discuss the issue.

European Union members are also struggling to reach a consensus in fiscal policy matters. Hungary and Poland are currently vetoing the implementation of a 2 trillion euro fiscal stimulus package, which can jeopardize their own receipt of funds should the other 25 Eurozone members push for an exclusionary ad hoc agreement. The delay in the implementation of this stimulus package may hinder the economic recovery of the Eurozone, increasing concerns about the fate of the union.

Economic Calendar

Last week, important data about the economic situation of the Eurozone was released. The Eurozone manufacturing sector expanded at a faster pace in November at 53.8 after being at 54.8 in October, while the services sector declined at 41.7. The business sector also declined at 45.3, though higher than expectations of 45.1.

The Core Consumer Price Index climbed by 0.2 percent in November according to preliminary data, remaining in line with analysts’ expectations. In yearly terms, it decreased by 0.3 percent, below expectations of 0.2 percent.

Retail sales rose by 4.3 percent in yearly terms, higher than forecasts of 2.7 percent. In monthly terms, they surged by 1.5 percent, also higher than expected, as analysts predicted 0.8 percent.

German industrial production surged in October, increasing by 3.2 percent after gaining 2.3 percent in September. Analysts attributed this increase to the surge of the German automobile sector, which gained 10 percent during the month.

Underlying Risks Threaten Euro’s Performance

So far this week, the euro has had a poor performance against the US dollar, dropping by 0.03 percent and breaking a three-week gaining streak. This month, the euro has gained 1.57 percent against the greenback, continuing the positive trend that began in November.

On the other hand, the euro surged by 0.77 percent against the pound sterling, rising for the third consecutive week. In monthly terms, it gained 1.53 percent, breaking a two-month losing streak.

It was somewhat surprising that the euro remained steady after the markets learned about the German industrial sector rebound, though it makes sense taking into consideration the underlying risks faced by European markets due to the negotiation deadlocks and the advance of the COVID-19 pandemic.

Given the fiscal deadlock, the ECB is now expected to expand its bond purchase program. Analysts predict that the central bank will add €500 billion to its emergency bond-perchasing program and expect it to be extended beyond June 2021.

Eurozone Economy Has Much Ground to Regain

As we already mentioned, the Eurozone gross domestic product decreased less than expected in yearly terms, mainly pushed up by an increase in consumer spending and business investment levels, which in turn is being boosted by an increase in government spending.

Despite the good news, the Eurozone economy has still to regain a lot of ground before getting back to pre-pandemic levels.

“A gap as bad as that seen in 2008 still remains, although we have to bear in mind that the economy was not completely open in the third quarter either,” commented an analyst at ING. “Still, this explains why we don’t expect the economy to fully recover before 2022, as there is a lot of ground to regain.”

Inflation is still far from the ECB’s target, as the latest Consumer Price Index reading showed a 0.3 percent contraction.

The unemployment level signals a slight worsening in the labor market at 8.4 percent after being at 8.3 percent in September.

Upcoming Events

• On Thursday, Eurostat will be publishing the Consumer Price Index for November.

• On Friday, IHS Markit will be releasing December’s preliminary PMI data.

• Also on Friday, Germany’s Federal Statistical Office is publishing the Producer Price Index.

Pound is pushed higher by positive unemployment data and remaining Brexit optimism; UK economic data is mixed, though solid.

The United Kingdom’s Office for National Statistics recently reported the country’s unemployment rate, which stands at 4.9 percent for the third quarter, and lower than expectations of 5.1 percent. However, unemployment is higher than September’s 4.8 percent.

November’s Claimant Count Change rose higher than expected at 64.300, after dropping by 29.800 in October. Analysts had expected it to climb by 50.000. This left the claimant count rate at 7.4 percent in November, higher than the previous month’s 7.2 percent.

Average earnings including bonus went up by 2.7 percent in Q3, higher than expectations and September’s figure, which stood at 1.3 percent. Excluding bonus, average earnings rose higher than expected at 2.8 percent, after the previous month’s 1.9 percent.

“Vacancies have continued to recover in the latest period but are still below the levels seen before the impact of the coronavirus pandemic,” commented the ONS in its report.

The House of Lords Economic Affairs Committee said on Monday that the Treasury should move away from wage subsidies and focus on boosting jobs in sectors where they are needed. The committee also insisted on aiding young people and highlighted that it’s wrong to assume that the economy won’t need support just because a vaccine is now available.

So far, 1,869,666 COVID-19 cases have been reported in the United Kingdom, as well as 64,402 deaths, making it the second most affected country in Europe and the sixth in the world. A sharp rise in the number of cases pushed London’s local authorities to consider a strict lockdown, which is set to begin on Wednesday morning.

Economic Calendar

Beyond the unemployment figures, not many relevant data about the state of the British economy have been released recently, though some key figures were released last week.

Last week, the ONS reported that manufacturing production rose higher than expected, climbing by 1.7 percent in October (month-on-month) after rising by 0.2 percent in the previous month. In yearly terms, it dropped by 7.1 percent, better than the expected drop of 8.4 percent and after decreasing by 7.9 percent in the previous month.

Industrial production also rose higher than expected as it gained 1.3 percent (month-on-month) after rising by 0.5 percent in September. In yearly terms, it dropped by 5.5 percent, less than expectations of a 6.5 percent contraction and better than the previous month’s 6.3 percent fall.

The monthly gross domestic product increased by 0.4  percent, remaining in line with analysts’ expectations, though lower than the previous month’s 1.1 percent surge.

Pound Sterling Surges on Brexit News

Positive news about the Brexit trade talks pushed the pound sterling higher, gaining 0.78 percent against the US dollar and recovering from the previous week’s 1.59 percent drop.

“Sterling sky-rocketed out of the gates at the Sunday open after EU/UK Brexit negotiators failed to reach an agreement over the weekend, but agreed to go the extra mile,” commented an analyst at Western Union.

The UK is now negotiating its exit deal with the European Union, and the prospects for reaching it are better after the British prime minister accepted that there is a need to ensure fair competition for British and European businesses. The European Union’s chief negotiator, Michel Barnier, expressed his optimism, though added that the path to an agreement remains “very narrow”.

Significant progress has not been made in this realm in recent days, though both the EU and the UK agreed to continue talks past the deadline. The UK is set to leave the European Union by January 1st.

UK Economic Data Mixed Though Solid

As already mentioned, the latest unemployment data was better than expected at 4.9 percent in Q3, surpassing forecasts of 5.1 percent.

Inflation data are also better than expected, as the Consumer Price Index rose by 0.7 percent in October (year-on-year). However, the figure is still way below the Bank of England’s inflation target, which currently stands at 2 percent.

On the other hand, the latest gross domestic product figure missed analysts’ expectations, though improved from the previous quarter’s figure. In quarterly terms, the GDP rose by 15.5 percent in the third quarter after falling by 19.8 percent in the previous quarter. In annual terms, the GDP contracted by 9.6 percent, missing expectations of a 9.4 percent contraction and improving from the previously reported 21.5 percent drop.

It seems the Bank of England still entertains the possibility of setting negative cash rates, as the media have recently reported that the BoE has been consulting with UK lenders to see what preparations they need to make in case they decide to do so.

Not everyone is enthusiastic about this possibility. An analyst at HSBC commented that the BoE’s monetary policy committee should consider carefully whether setting negative interest rates would have the desired outcomes.

“Where we see places where they have already been introduced, Europe, Japan, Switzerland, we haven’t seen inflation rise and the growth hasn’t come back as strongly as one might have hoped,” commented the analyst.

Upcoming Events

• Tomorrow, the ONS will be publishing both the Consumer and Retail Price Indeces.

• Also tomorrow, Markit Economics will be publishing both the Manufacturing and Service PMIs.

• On Thursday, the Bank of England will be publishing its interest rate decision.

• Retail sales data will be reported on Friday.