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Yesterday the EURUSD went back and forward without any clear direction but managed to close in the green, in the middle of the daily range, in addition closed within the previous day range, which suggests being clearly neutral, neither side is showing control.
The pair continues to trade below the 10, 50 and the 200-day moving averages that are acting as dynamic resistances.
The key levels to watch are: The 50-day moving average at 1.1170 (resistance), the 200-day moving average at 1.1120 (resistance), a daily resistance at 1.1097, the 10-day moving average at 1.1054 (resistance) and daily support 1.0900.
EUR/USD Weekly Outlook: Pair Awaits Fed & US Data for Direction
The EU calendar starts on Monday with German Ifo surveys for July, which are expected to slow from previous levels, mainly due to the Brexit aftermath.
Thursday will see German retail sales for June and a big slowdown is predicted here as well. Later in the day, German labor market data for July and German inflation indices for July are due.
On Friday, only French inflation update is due and GDP for the second quarter will also be published and should weaken notably quarter-on-quarter, but the yearly change is projected to tick higher to 1.5% from 1.3% scored in the previous quarter.
From the US dollar perspective, the services PMI for July is due on Tuesday, along with consumer confidence for the seventh month of the year. Moreover, new home sales for June are predicted to post 1.5% month-on-month growth.
On Wednesday, durable goods for June will be published and a slight improvement is predicted.
More importantly, the Federal Open Market Committee meeting will conclude and the Federal Reserve (Fed) will most likely leave the fed funds rate unchanged at 0.25 - 0.50%. However, the following statement will be important as US data have been positive in the previous weeks and therefore a slightly upbeat or hawkish statement is expected from the Fed.
On Friday, the first estimate of the US GDP for the second quarter is due and should improve notably to 2.6% from 1.1% in the previous quarter. Moreover, the PCE annualized index, along the GDP price index will be published.
Furthermore, the employment cost index is due, followed by the Chicago PMI and the University of Michigan consumer confidence gauge.
EUR/USD: A Sell On Rallies Or A Buy On Dips - BofA Merrill, Morgan Stnaly
BofA Merrill: A Sell On Rallies Trageting 1.05.
Another week passes and markets remain in wait and see mode ahead of a key period for policy decisions and events which include the Bank of Japan next week and the Bank of England the week after. One thing that did not surprise us was the ECB rate decision which confirmed our ex ante expectations that President Draghi would be full of hints on potential further accommodation but would ultimately be light on detail. Unsurprisingly therefore, the meeting was a non-event for the Euro. Draghi started preparing the market for QE extension, most likely in September. Markets already expect QE extension and are therefore hard to impress. We will have to wait for this fall to see how far the ECB can go to be able to relax some of the QE constrains in order to extend purchases for as long as necessary to meet the inflation target.
In the meantime, we continue to sell EUR/USD rallies, as we also expect the Fed’s next hike in December, or early next year the at the latest. The EUR is also vulnerable to Brexit related risks, which remain elevated due to the prolonged uncertainty, and any risk-off market correction. We continue projecting EUR/USD at 1.05 by the end of this year, with balanced risks around this projection. Looking ahead to September, we continue to think that with an increasing share of the German yield curve in negative territory the ECB needs to tinker with the capital key. Buying more Bunds by moving the issuer limit from 33% to 50% for non-CAC bonds we think would only make things worse – in terms of public opinion backlash in Germany and technical issues for long term investors - and so would buying below the deposit rate. We reiterate our call that while keeping the capital key as a reference value, in September the ECB will take some distance from the current implementation, by applying it to a wider array of asset classes or by allowing a redistribution of the purchasing all
Morgan Stanley: A Buy On Dips Targeting 1.16.
We expect EUR to appreciate moderately this year but then depreciate significantly in 2017. EUR fits into the category of currencies driven increasingly by real over nominal yield differentials. Falling inflation expectations as a result of below-par DM growth coupled with the inability of nominal bond yields to fall at the same pace should push real yields higher in the eurozone.EURUSD should move higher as real EMU rates rise faster than real US rates. Sure, EMU economic weakness from Brexit is expected to keep the ECB accommodative for longer. However, without rate cuts deeper than the market's current pricing of 60% probability of a 10bp cut in 2016 and a 14bp cut in 2017, EUR is going to find it difficult to weaken.Enlarging the QE program may not translate into EUR weakness because relatively flat yield curves in the eurozone mean that QE is less effective at bringing down long-end bond yields as much as in the past.
Current account dynamics: The eurozone's 3% of GDP current account surplus means that the currency should remain supported unless EUR is pushed back out into long-term investment abroad. Balance sheet constraints on struggling EMU banks have reduced the incentive to lend abroad. In fact,eurozone banks have been repatriating foreign lending activities over recent months, keeping EUR from falling aggressively despite increased political concerns following the Brexit vote. Weakness in European equities should further support the currency view as lower regional risk appetite should reduce the incentive to add to investments outside of the eurozone.
Political risks: The political risks that could emerge in 2017 area big reason why we expect EUR to weaken. October 2016 already brings a slew of events such as the Italian constitutional referendum, Hungarian referendum on immigration and a re-run of the Austrian national election. In 2017, we will have general elections in France and Germany where markets could debate the future of the single currency should there be an increased proportion of votes won by populist parties.
Targets:
Forecasts for 2016 GDP and CPI have not changed, so that the bank have no reason to sharply increase incentives in the near future. A decline of the EUR/USD could be caused only by the power of the dollar, expecting euro weakness in the current situation has no grounds.
The single currency recorded a decreased against the US dollar on Friday. The session started at 1.1023 and the pair lost 50 pips at a closing price of 1.0973. The price broke through the first support at 1.0980. In the short term outlook remains negative, the graph continues to develop under the moving averages.
On the last Friday’s session the EURUSD fell with a wide range and closed in the red, near the low of the day, in addition managed to close below Thursday’s low, suggesting a strong bearish momentum.
The pair continues to trade below the 10, 50 and the 200-day moving averages that are acting as dynamic resistances.
The key levels to watch are: The 50-day moving average at 1.1166 (resistance), the 200-day moving average at 1.1122 (resistance), a daily resistance at 1.1097, the 10-day moving average at 1.1045 (resistance) and daily support 1.0900.