Trade of the Week - EURUSD
EUR: Eurozone economic sentiment faltered as manufacturers turned more pessimistic: The European Commission Economic Sentiment Indicator (ESI) lost 1.4pts to 101.7 in September (Aug: 103.1) due to a “substantial deterioration” in the industrial confidence and a slight decline in retail trade sentiment. Confidence improved among consumers (-6.5 vs -7.1) and remained broadly stable in the services and construction industries according to the European Commission. The sharp decline in the industrial sector (- 3pts) was not surprising as the single currency area continued to experience a downturn in its manufacturing industry, particularly in its largest economy Germany.
USD: US personal spending slowed while income rose: Consumer spending slowed in the US last month according to official BEA data, pointing to a softer US economy in the third quarter. Personal consumption expenditure (PCE) which had been fuelling the US economic growth for the last quarter rose by a mere 0.1% MOM in August (Jul: +0.5%) as the increase in spending on motor vehicles and recreational goods were offset by the fall in food services and accommodation. On a brighter note, personal income growth returned to a solid pace of 0.4% MOM (Jul: +0.1%) supported by wages and salaries increases. The core PCE price index, the Federal Reserve’s key inflation gauge meanwhile rose 0.1% MOM (Jul: +0.2%), the annual gain was a faster 1.8% YOY (Jul: +1.7%), inching nearer to the Fed’s 2% target. On a separate note, in contrast to the recent fall in the Conference Board Consumer Confidence Index, the University of Michigan Consumer Sentiment Index rose to 93.2 (Aug: 89.9) due to more favourable income trend but consumers continued to express economic uncertainty according to the latest survey.
NOTE: According to Citi Bank September month end is likely to see rotation out of equities and into bonds with a relatively strong signal at +/-1.1 historic std. dev. The outperformance in equities is set to drive a majority of the rebalancing with US and Canada poised to see the strongest rotation. Both equity outflow and bond inflow signals in both countries come in above +1 historic std. dev threshold. Japan follows similar trends while EM signals are relatively weak. Overall the net FX impact is likely to be selling of USD against the EUR and GBP at month end.
From a technical and trading perspective the EURUSD continues to hold ‘wedge’ support in the 1.0900 region. For this pattern to eventually be confirmed look for a stronger recovery, with a move through 1.0980 and then 1.1040/1.1115 opening a move back towards important ‘wedge’ resistance around 1.1300. I am looking for one final push to the downside to test the confluent support at 1.0885 containing the monthly and weekly S1, with the daily S2 just below.
Please note that this material is provided for informational purposes only and should not be considered as investment advice. The views discussed in the above article are those of our analysts and are not shared by Tickmill. Trading in the financial markets is very risky.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!