Rate hike speculation is back, and finally investors can focus on real economic factors. The Euro has lost about 350 pips, with sellers found waiting on every resistance level. The major gainer is the USD, buoyed by the week EUR and Yellen’s comments about raising rates this year.
Canadian wholesales are at the center of attention. BOC’s (Bank of Canada) 25 basis points rate cut to its benchmark interest came as a surprise, reflecting the Bank’s economic concerns, and sending the CAD around 300 pips lower. We are waiting on the wholesale sales to set the tone on any trading activity, and if the numbers fall into negative territory the CAD will suffer further.
We don’t expect much market activity from the RBA minutes, as their data are obsolete. However, RBA governor Glenn is scheduled to speak early on Wednesday, and he is expected to comment on the RBA’s decision to maintain rates at 2% and their future plans for easing measures aiming at increasing economic activity. Another rate cut is probable since the Australian economy has performed weaker than expectations, and that will deliver a blow to the AUD. However the RBA is monitoring its economic data and will proceed accordingly.
US housing sector, and RBNZ rate decision will be on focus.
Housing data in US is watched closely by the FED due to its close ties to economic cycles. US existing home sale are expected to advance at 5.4 million from 5.35 million in May. The housing sector has been one of the strongest in the US economy and analysts expect the numbers to be above expectations.
Royal Bank of New Zealand is expected to announce their rate decision on Wednesday. Affected by a weak Chinese demand for dairy products, whose prices fell more than 50% this year, the Central Bank was forced to cut rates in order to protect the economy from any risk of deflation. Analysts expect another rate cut but we don’t believe that will happen before then end of the year. The market will be looking for action in the statement following the rate decision.
The event to watch will be the US unemployment claims. Past week numbers have shown that the US labor market is strong enough to support an interest rate hike this year. Numbers fell by 15k to 281k. We should see the USD perform positively if the claims remain below 300K
We’ll focus on the Chinese PMI numbers to understand how the world’s second largest economy is performing. Analysts expect a small increase from 49.4 te previous month to 49.8, which leaves it below the 50 point mark in contraction area. Any results above 50, will positively affect AUD and NZD, whose economies are closely tied to the Chinese.
Also on Friday we expect some European data with regards to services and manufacturing performance. Last month results were above the 50 level, reflecting an expanding economy. Greece is out of the way for the moment so investors will be focusing on actual economic data. Anything below expectations will hit the EUR, and vice verca.
We see the downtrend resuming, and we are waiting for a confirmation by taking out 1.08.
As we can see from the weekly chart above there has been some consolidation in the EUR/USD pair, trading between 1.1450 and 1.0820. A downside brake is more favorable at the moment, with stochastics at oversold levels. We need to see the RSI in oversold territory as well in order to confirm a potential move. EUR/USD is being held by a support level at 1.0815-1.0820, a strong support holding up the fall since February. Any brake of this support will allow us to move lower to the 1.06 – 1.07 level.
1.0820, 1.0660 and 1.05 are the levels to be broken in order to confirm a move down.