Chapter 26 09/06 EURUSD: Focus on the Adjustment in the Short Term and Downtrend in the Middle Term
Abstract: The retail sales published by Eurostat is an indicator to measure the changes in retail sales in the eurozone. It shows the short-term performance of the retail industry. The percentage change reflects the change rate of such sales, and these changes are regarded as indicators of consumer spending. Usually, positive economic growth indicates the "bullish" of the EUR, while low economic growth is regarded as unfavorable or "bearish" for the EUR.
Fundamentals
According to data released by Eurostat on Wednesday, retail sales in the eurozone decreased by 0.2% (-0.2%) in July, lower than expected -0.1%, while it increased by 0.2% in June.
On an annual basis, the retail sales in the EU fell by -1% in July, which is expected to be -1.2%, while the retail sales in June were -1.0%.
This was a mixed report as there was at least one positive revision to June's numbers. Looking at the breakdown, retail sales fell in July primarily due to a decline in motor fuel sales. Meanwhile, both food sales and non-food sales posted positive growth for the month.
The EUR has hardly been affected by optimistic consumer spending data in the eurozone. As of this writing, the EURUSD traded at 1.0733, up 0.11% on that day.
On the dollar side, after rising to a six-month high close to 105.00 in the previous trading day, the USD faced some selling pressure. Although the yield of U.S. Treasury Securities rebounded significantly in different periods, it still showed a slight decline.
At the same time, the market is full of confidence in the Fed's decision to stop raising interest rates for the rest of this year. On the contrary, the European Central Bank (ECB) found itself facing a situation of uncertainty about the future interest rate trajectory after the summer, which aggravated the vague atmosphere prevailing in the market.
Kazimir, a member of the ECB Governing Council, said that the ECB needs to raise interest rates again to ensure that the inflation rate returns to 2%. Kazimir said that it is better to take this measure next week than to suspend interest rate hikes because price growth is still too strong, but suspending interest rate hikes is also one of the options. "This is a more direct and effective solution".
Kazimir said, "The market has got a clearer indication of the possible final interest rate, and we have more time to assess whether inflation is continuing to decline towards our goal". This is one of the clearest statements made by the hawks of the ECB Governing Council so far.
Technical Analysis
The EURUSD has been on a steady decline after hitting an 18-month high of 1.1275 on July 18, producing a series of lower highs and lower lows. On top of that, the EURUSD has broken below its 200-day SMA, which further worsens the technical outlook.
Current momentum indicators suggest that the bearish strengths are under control. Specifically, the Relative Strength Index is hovering well below the neutral level of 50, while the Stochastic indicator has fallen to the oversold threshold of 20.
If declines continue to widen, near-term support at 1.0706 could become the first line of defense, and a break below this level could open the door to new lows, where the May bottom at 1.0633 could curb further declines. If downward momentum fails to stay here, bears could challenge the March bottom at 1.0515.
Alternatively, if the EURUSD reverses higher, the bulls could build on the support of the previous low at 1.0679 to move further up to the upward-sloping pressure line before reaching the 1.0850 resistance level. Any further move higher should stop at that range; after all, the EURUSD has broken below the 200-day SMA in the early going and may continue to move lower in the later stages.
Overall, bulls continue to remain on the sidelines as the EURUSD does not seem to be ending its downtrend. To change this bearish sentiment, the EURUSD needs to recover its 200-day SMA. It is recommended to focus on bear profit-taking and buy the dips.
Trading Recommendations
Trading direction: Long
Entry price: 1.0675
Target price: 1.0854
Stop loss: 1.0630
Deadline: 2023-09-20 23:55:00
Support: 1.0706, 1.0679, 1.0633
Resistance: 1.0750, 1.0808, 1.0854
