EURUSD, Daily
In Friday’s report we identified 1.1093 – 1.1154 as a likely range to contain EURUSD action after the NFP report. Apart from a spike to the upside trading was maintained well within the range. The low for the day was 1.1090 while the high printed at 1.1189 and the close inside the range at 1.1149. As a result the last week’s candle turned into a narrow range bar that signals hesitation. In relation to daily Bollinger Bands (20) price is firmly in the mid-range and it is therefore challenging to estimate the future moves. Today’s euro zone GDP release is out at 09:00 GMT. The number is expected to be a confirmation of the preliminary release. EURUSD is finding some support from 1.1154 – 1.1170 range but the bias is on the downside. Next important support levels are at 1.0930 and 1.1018.
ECB’s Noyer says markets are well prepared for Fed hike. The Bank of France Governor said the “Fed’s communication has been done well and in detail, adding that an increase in the federal funds rate is inevitable and the markets are well prepared. It is not the timing that matters. Draghi’s dovish comments last week were clearly also designed to remind markets that Europe is in a different situation and that a hike in the U.S. won’t mean tighter policies in Europe, which should also help to limit upward pressure on the EUR if rate hike expectations in the U.S. are being pushed out.
ECB’s Weidmann: Direct impact of China equity slump limited. The Bundesbank President said at the sidelines of the G20 meeting that the direct impact of the stock correction in China and that the Bundesbank sees no reason to change its growth forecast for Germany. Still, he stressed heightened uncertainty about the outlook and said risks have shifted, while at the same time repeating once again that monetary policy cannot solve all problems. This seems to be the general tenor of ECB comments at the moments, with officials trying to dampen market reliance on central bank intervention to fix the economic outlook, although words alone won’t change that.
Copper and other metals are up after Glencore announced output cuts at two of its copper mines, which will cut supply by about 400 thousand tonnes. Copper prices are now up by 1.7% on the day. Oversupply has been a big issue in the copper market, similar to iron ore, crude and many other raw materials. Glencore’s decision comes after data last week showed Chinese manufacturing PMI dove to a three-year low in August. China is the world’s biggest consumer of copper, and many other commodities. Copper prices hit cycle lows on Aug-24, during the recent height of the recent Chinese stock market panic, but have since rebounded by 5.5%.
German labour growth accelerates sharply. Latest data show total labour costs up 0.9% q/q in Q2, bringing the annual growth rate to a whopping 3.1% y/y, from 2.8% y/y in the previous quarter and versus just 0.7% at the start of 2014. Gross wages and salaries rose 3.4% y/y in Q2. The tight labour market is boosting wage demands and settlements and with inflation at very low levels, real disposable income is picking up and supporting private consumption, but also marked increases in property prices, especially in the urban hot spots. Amid sluggish productivity growth, the increases also look unsustainable and will undermine competitiveness and are likely to push up unemployment in the medium term, with the decline in jobless numbers already starting to peter out.
Currency Movers Charts
Ugly trade data from China gave further confirmation for the slowdown in its economy. The 13.8% drop in imports was even worse than 8.2% drop expected by the economists. As China is an important trade partner for Japan this hit the Japanese stock market hard and sent JPY sharply lower against the majors. The biggest losses in have been at the time of writing against the GBP and AUD.
GBPJPY was trading at the lower weekly Bollinger Bands (20) and near to a support. The pair has rallied strongly and is currently challenging 50 week SMA at 184.27. AUDJPY is also deeply oversold in the weekly picture. The current up move is taking place from a support area that was formed in August 2012. EURJPY also moved higher from weekly Bollinger Bands (20) and is currently trading near a resistance area at 134.50 – 135.00.
Significant daily support and resistance levels for these pairs are:
Main Macro Events Today
Chinese import export data disappointed.Imports slumped by almost 14% year on year while YoY exports declined by 5.5%.
German trade surplus widened as exports rebound. Germany posted a sa trade surplus of EUR 22.8 bln in July, up from EUR 22.1 bln in the previous month, as exports rose 2.4% m/m, more than compensating for the 1.1% m/m decline in June. Imports rose 2.2% m/m, after falling 0.8% m/m in the previous month. Unadjusted data showed a surplus of EUR 25.0 bln in July, which brought the total for the year to date to 148.7, up from 122.1 in the first seven months of 2014. Exports were up 6.8% y/y over this period. Despite the scare stories, no sign then that German trade has been impacted significantly by slowing growth in China, at least so far, and Germany is heading for a new record trade surplus, although with import prices down on the year, this is of course partly also due to low oil prices.
Eurozone final Q2 GDP: Eurozone Q2 GDP growth is expected to be confirmed at 0.3% q/q and 1.2% y/y, in line with preliminary numbers, which will leave the focus on the breakdown. We expect net exports and private consumption to have been the main drivers of growth. Investment remains the Eurozone key weakness, despite the very accommodative monetary policy. There are signs that loan growth is stabilising, but even in Germany, where financing conditions are not really a problem, investment has remained modest with structural factors, rather than financing conditions the main impediment for stronger investment.
