EURUSD Fundamentals (based on dailyfx article)
The Euro experienced a minor setback this week against most of its
major counterparts, losing the most ground to the increasingly
resilient and impressive British Pound. Even EURUSD had a late-week
letdown on the back of the US labor market showing additional
fortitude, as the US unemployment rate fell to a post-recession low of
6.1%, the lowest since September 2008. The recent barrage of
important data on both sides of the pond suggests a widening
differential in central bank policy, leaving the Euro at a disadvantage
against the British Pound and the US Dollar going forward.
As traders were buying US Dollars on Thursday after the June US labor
market showed the fifth consecutive month of jobs growth above +200K,
European Central Bank President Mario Draghi was simultaneously holding
court after the ECB policy meeting; the Governing Council’s latest actions did little to help support the Euro.
In absence of new policy action, ECB President Draghi’s greatest
contribution on Thursday was to remind traders that not only would
interest rates remain low for an extended period of time, but that the
ECB was also intensifying prep work related to asset-backed securities
The problem for the ECB with ABS purchases, which is why the market
hasn’t taken the threat as a significant reason to drive Euro exchange
rates lower, is that the ABS market in the Euro-Zone is not nearly as developed as it is in the United States;
and therefore the amount of ABS purchases potentially necessary is
difficult to quantify. The ECB, up until this point, was not (and still
truly isn’t) necessarily aware of how big the ABS market was and how
strong of a purchase program they would need to design.
While the threat of a major LSAP is certainly brewing, the clout
behind the ECB’s potential €1 trillion TLTRO is rather weak, at least
from the perspective that it could keep downside pressure on the
EUR-crosses in a meaningful way. Simply put, these are not carte
blanche liquidity injections; the rules published by the ECB on
Thursday make well-clear their intention to improve liquidity channels
and reduce credit fragmentation across the Euro-Zone.
If the TLTROs are effective, they end result will be capital used to
boost organic growth opportunities rather than speculative reach for
yield (in the US, the UK, and the Euro-Zone, open-ended QE is widely
perceived as free money for financial institutions at the expense of
taxpayers and savers, so the ECB is being careful to craft a program
that won’t fan the speculative flames). Over time, the TLTROs could even prove to be broadly EUR-positive, but not for several months or years.
For now, the Euro is stuck with a central bank in holding position,
preparing for its next move, as it waits and observes what its prior
actions have resulted in. One thing is clear, however: the ECB is taking
on a more dovish stance by expanding its non-standard policy easing
toolbox, and has no intention of tightening policy within the next 12-
The ECB’s ‘lower for longer’ stance is prohibitive for the Euro
because the British Pound and the US Dollar are being bombarded with
strong economic data and rising sovereign yields as a result, as market
participants start to price in interest rate hikes from the Bank of
England and the Federal Reserve, respectively.
In this interim period of ECB inaction, we turn our attention outwardly to the BoE and the Fed as the more significant drivers of price action in EURGBP and EURUSD (and
GBPCHF and USDCHF as well, given the highly significant, nearly perfect
positive correlation between EUR and CHF since September 2011 when the
SNB levied the Sf1.2000 floor in EURCHF).
EUR/USD Weekly Fundamental Analysis July 7 – 11, 2014 Forecast
closed the week below the 1.36 range falling steadily after the ECB
decision and the dovish Mario Draghi on Thursday. On Friday German
factory orders missed expectations driving down the shared currency. The
euro closed the week at 1.3588.
ECB officials, led by President Mario Draghi, left monetary policy
unchanged after Thursday’s meeting in Frankfurt, according to analysts.
The ECB unveiled unprecedented stimulus measures at its previous meeting
on June 5, including negative deposit rates that tend to weaken a
currency. Markets largely shrugged off the European Central Bank’s
latest monetary policy meeting, but the euro weakened against the dollar
following stronger -than-expected jobs growth in the U.S.
ECB Chief Mario Draghi struck a cautious tone in his monthly news
conference Thursday, running through technical details of the central
bank’s plan to provide cheap loans to euro-area banks. Longer term, some
analysts think last month’s easing package could make a bigger dent in
Mr. Draghi said its program of cheap loans to banks could total as much as a trillion euros.
“If Draghi is right the ECB balance sheet would grow considerably
over time. Given the historic link between [the Eurodollar exchanged
rate] and the ratio of Fed/ECB balance sheet—this should underscore the
downside risks to [the euro],” said Valentin Marinov at Citigroup.
2014-07-07 06:00 GMT (or 08:00 MQ MT5 time) | [EUR - German Industrial Production]
if actual > forecast = good for currency (for EUR in our case)
[EUR - German Industrial Production] = Change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. It's a leading indicator of economic health - production reacts quickly
to ups and downs in the business cycle and is correlated with consumer
conditions such as employment levels and earnings.
Also Called : Industrial Output.
German industrial production declined unexpectedly in May, official data indicated Monday.
output fell 1.8 percent in May from the prior month, Destatis reported.
This was the third consecutive fall in production. Economists had
forecast a 0.2 percent rise after declining by revised 0.3 percent in
Production in industry excluding energy and construction decreased 1.6 percent in May.
industry, the production of intermediate goods and consumer goods
decreased by 3 percent and 3.5 percent. The producers of capital goods,
however, reported a slight increase of 0.3 percent on the previous
Energy production gained 1 percent in May, while the production in construction slid 4.9 percent from April.
Euro subdued by German data, dollar holds on to recent gains
The euro slipped on Monday,
testing a 22-month trough against the British pound, after weak
German industrial data highlighted the divergent economic
prospects between the euro zone and those of its biggest trading
German industrial output fell 1.8 percent on the month in
May, its biggest drop in more than two years, surprising most
analysts, who had forecast an unchanged reading.
The weak data kept alive expectations that the European
Central Bank may need to loosen monetary policy further in
coming months in the face of disinflationary pressures and
subdued economic growth.
ECB policymaker Benoit Coeure said at the weekend that rates
will remain very low for a long time, regardless of developments
in the rest of the world.
In contrast, the Bank of England is expected to tighten
policy either before the end of this year or early next year.
Investors have also brought forward their view on the timing of
the first rate hike by the U.S. Federal Reserve to mid-2015
after a stellar jobs report last week.
That helped the dollar index trade near its highest
in nearly two weeks, at 80.359. The euro was down slightly at
$1.3590, having fallen to $1.3576 earlier in the European
session, its lowest since July 26. It fell to a 22-month low
against the pound of 79.14 pence after the German
data, but recovered to trade at 79.35 pence.
"The German data was a bit weak and in line with recent euro
zone data. This will add to selling pressure in the euro in the
near term," said Yujiro Goto, currency analyst at Nomura.
He expected euro/dollar to drift lower, especially in light
of last week's U.S. jobs data. The strong non-farm payrolls
report prompted traders to slightly increase bets that the Fed
will lift rates in June next year.
Most traders, though, are cautious about adding to long
dollar bets, aware that Fed policymakers will probably err on
the side of caution or wait for wage inflation to pick up before
hiking interest rates.
FED MINUTES IN FOCUS
Fed minutes, due to be released later this week, should shed
more light on how the debate within the rate-setting committee
is shaping up, traders said.
"The FOMC minutes this week could reveal how the Fed views
the recent rise in inflation and stronger data. The risk is that
there is a divergence between the doves and the hawks on the
committee," Morgan Stanley analysts said in a note.
"With (Fed chair Janet) Yellen staying firmly dovish, the
minutes may reflect this and has a chance to put the dollar
The dollar's failure to make much headway has been the big
disappointment on currency markets this year. Most traders say
that unless two-year Treasury yields rise sharply,
the dollar, which has a good correlation to U.S. yields, is
unlikely to push much higher.
The dollar fell against the yen to 101.90 yen, after
having risen 0.7 percent last week. The euro also shed 0.2
percent to trade at 138.51 yen with falling stock
markets offering the safe-haven yen some support.
Sterling, however, slipped against the dollar to $1.7125,
off last week's six-year high of $1.7180. The Canadian
dollar, also in favour at the moment, stood at C$1.0643 per USD
, just off a six-month high of C$1.0620 struck on
EUR/USD Above 1.36 with Focus on Fed Minutes
The U.S. dollar inched higher against the euro on Monday but pared
some early gains, as investors continued to digest last week's strong
U.S. employment report and speculated about when the Federal Reserve is
likely to begin raising rates.
The dollar stabilized after a week of gains, with no major U.S.
economic releases due this week and trading expected to be relatively
light after the Independence Day holiday.
The dollar has gained and the Treasuries yield curve has flattened
after data on Thursday showed nonfarm payrolls increased by 288,000 jobs
last month and the unemployment rate fell to 6.1 percent from 6.3
percent in May.
2014-07-08 01:30 GMT (or 03:30 MQ MT5 time) | [AUD - NAB Business Confidence]
if actual > forecast = good for currency (for AUD in our case)
[AUD - NAB Business Confidence] = Level of a diffusion index based on surveyed businesses, excluding the farming industry. It's a leading indicator of economic health - businesses react quickly
to market conditions, and changes in their sentiment can be an early
signal of future economic activity such as spending, hiring, and
Acro Expand : National Australia Bank (NAB).
Australian Business Confidence Strengthens In June
confidence improved in June, although conditions remained sub-trend,
results of a survey by the National Australia Bank showed Tuesday.
NAB business confidence index increased to 8 in June from 7 in May
despite the government's challenging new budget. This improvement was
driven by strengthened confidence in almost all the industries, with the
surge in construction industry confidence contributing the most.
New orders remained stagnant in June, the same as in May.
the employment index weakened in June, coming in at -3, after being
unchanged in May. Capacity utilization fell to 79.3 percent in June from
80.2 in May.
On the pricing front, input costs rose 0.3 percent
quarter-over-quarter in June, a slower rate of increase than the 0.4
percent increase in May. Labor wages grew at a slower rate of 0.6
percent in June following the 0.7 percent increase in May. Output prices
rose 0.1 percent on a quarterly basis in June, the same rate as in May.
business conditions index increased to 2 in June from -1 in May, ending
the negative trend that started in the beginning of the year. Sales and
profits were stronger in June while employment remained weak.
EURUSD Elliott Wave Morning Review
The FX market is slow, same on metals while stocks are moving
slightly bearish. On the USD pairs we are still observing corrective
price action from where USD is expected to strengthen against the
majors, such as EUR, CHF, AUD and even JPY.
On the EURUSD chart we are looking at a three wave rally against the
five wave decline that occurred last week. Nice resistance for this pair
comes in at 1.3620-1.3640 from where we expect a resumption of a
downtrend. Invalidation level is at 1.3700 as current corrective rally
must not retrace more than 100% of preceding, impulsive decline.