Greenback weighed by weak economic reports
It was August 12, 2016 when the Commerce Department revealed that the US had a rather disappointing economic data.
All data failed to surpass consensus estimates— US retail sales were flat, and core retail sales, on the other hand, declined by 0.3% in July. In a separate report, US producer prices slipped 0.4%, and year-over-year producer prices fell 0.2%. Additionally, the University of Michigan claimed that the consumer sentiment index climbed to 90.4, but still came under a forecast of a bigger increase valued at 91.5.
With the gathered downbeat economic data, these hosed down hopes for an interest rate hike by the Federal Reserve and sparked worries over the strength of the US economy, the largest in the world.
Besides the aforementioned weak US economic data, another factor added in to the dollar’s free fall and the pair’s upsurge.
Official data revealed on Monday that the New York Federal Reserve’s index of manufacturing conditions or business activity among New York manufacturers surprisingly plunged in August.
Euro restrained as markets on holiday
Although dollar was down, the euro remained passive for Monday as countries Italy and France had their markets on a holiday.
Nonetheless, the euro was buoyed by Eurozone economic growth data in which it came out in line with expectations and industrial production data was higher than anticipated last Friday as well.
Eurostat also said that GDP jumped 0.3% in the second quarter, unchanged from the previous quarter and in line with consensus forecasts. In a year-on-year basis, GDP rose 1.6%, matching both the expansion in the first three months of the year and the estimate.
A separate report revealed that Eurozone industrial production inched up 0.6% in June, topping forecasts for a 0.5% increase and after a 1.2% decline in July.
EUR/USD opened higher at 1.11672 on Monday from its last close at 1.11626. As of 14:30 PM GMT, it is up by 0.29% to trade at 1.1193.
In a similar event in August 2, 2016, EUR/USD reached an intraday peak of 1.2324 and closed at a high of 1.1222. These were the highest levels since the historic Brexit event in which the UK had a 51 to 48 vote in favor of leaving the European Union.
As indicated on the chart below, we can see the strongest surge on August 2, 2016. In the matter of three days, however, EUR/USD went downhill on Friday as US jobs data reports were revealed to be positive.
This was the currency pair’s lowest since July 22.
August 3’s session had traded lower and broke through the 1.11694 support and continued downhill until August 5’s session broke through yet another support level at 1.11084. August 8 had the beginning of an upward trend until August 10 when Fed rate hike hopes waned. August 11 marked the anticipation of investors on the then upcoming retail sales data, to which disappointed the market on Friday.
But what is next for the present day situation of EUR/USD?
Monday’s session was clearly buoyed by Friday’s downbeat US economic data. While the candlestick dated August 12 had not broken through resistance level 1.11694, the EUR/USD pair finally did and had hit so far in the day a session high of 1.11945 as of 14:30 GMT.
Tuesday would be busier for the pair, with the release of German ZEW Economic Sentiment and the US’s Building Permits and consumer inflation reports. These would contribute greatly to the currencies’ trends.
In US data reports, a steady short-term inflation has been forecasted but a decline in medium-term inflation is expected by the New York Fed. Labor market prospects generally waned, with a drop in earnings and job finding outlooks. Household finance estimates were positive, however.
For the German economic data, with the consequences of the Brexit vote just starting to be measured, third quarter numbers, including Eurozone GDPs, could fall significantly. Deflation also remains a foremost concern. Axed interest rates by the Bank of England and expanded asset purchases have pressured the European Central Bank to follow suit with more easing.
All in all, expectations for the American reports are mixed, and the European rather lower. Taking into account the same scenario last August 2, a surge may as well fall should key US data prove stronger. Although at present, with the forex pair breaking through the resistance, it is a likely signal that it may open higher in the next session, or at least be steady.
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