EUR/USD: German economy and American employment under the microscope

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Currency traders will have no bearings from Wall Street on Tuesday, a public holiday and non-working across the Atlantic for Independence Day. A very narrow margin evolution is expected on the Euro/Dollar currency pair, which continues to show both the relief on the inflation front, in particular the US, and the stronger than expected slowdown in the German economy.

Last week, a flurry of relatively good indicators, including the Conference Board’s consumer confidence and the PCE index, the US Federal Reserve’s (Fed) preferred gauge for measuring inflation, has fueled investor optimism recently. . The euro, one of the reference barometers of risk appetite, mechanically resisted.

Regarding the final data of the PMI industrial activity indicators in the Euro Zone for June, published yesterday, it is particularly the German component that challenges, coming out below the first estimates, at 40.6, the lowest since June 2020.

“It appears that the (capital intensive) manufacturing sector is taking the brunt of the ECB’s interest rate hikes with increasing difficulty, as evidenced in particular by the first decline in employment recorded since January 2021 and the one of the strongest declines in purchasing activity since the start of the survey”, comments Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

“In terms of demand, it was in Germany (followed by Italy and France) that companies reported the weakest new order entries at the end of the second quarter,” he added.

We are therefore closely monitoring the ZEW index of confidence in the German economy next week. Especially since the May trade surplus has just come out well below market expectations.

The big event of the week will undoubtedly be the NFP report on Friday. The traditional monthly federal private employment report will provide additional clues on sectors under stress and its consequences for wage dynamics, and will help refine the probabilities of a federal rate hike for the FOMC deadline at the end of the month. .

“If the scenario of a new rate hike by the Fed at the end of July still holds true (more than 85% probability), with a voluntary Jerome Powell during his last declarations, [Thomas Giudici, responsable de la gestion obligataire d’Auris Gestion] nevertheless considers that a new break is still likely.”

At midday on the foreign exchange market, the Euro was trading against $1.0900 approximately.

KEY GRAPHIC ELEMENTS

The Euro/Dollar currency pair now sees its 20-day moving average (in dark blue) cut upwards against its 50-day counterpart (in orange), which requires us, according to the established trading plan, to cut our positions short, waiting for suitable signals. Neutral advice offered, especially in the absence of benchmarks from Wall Street.

MEDIUM TERM FORECAST

In view of the key graphic factors that we have mentioned, our opinion is neutral in the medium term on the Euro Dollar (EURUSD).

We will maintain this neutral opinion as long as the Euro Dollar (EURUSD) parity prices are positioned between the support at 1.0784 USD and the resistance at 1.1000 USD.

CHART IN DAILY DATA