The German economic outlook improved for a third straight month, as Ifo Business Climate rose from 86.2 to 90.5 in July. However, other German data was soft. CPI fell by 0.5%, its second decline in three months. GDP in Q2 plunged 10.1%, worse than the estimate of -9.0%. In the Eurozone, CPI rose to 0.4%, up from 0.3%, while the core figure improved to 1.2%, up from 0.8%. Eurozone GDP fell by 12.1% in Q2, after a decline of 3.8% beforehand.
In the US, it was not a great week. Durable goods data softened in June. The headline came in at 7.3%, down from 15.8%. The core reading fell from 4.0% to 3.3%. The Fed maintained the benchmark rate at zero and had a dovish market for the markets, as expected. Policymakers reiterated their commitment to “act as appropriate to support the economy”, but did not announce any new policy measures.
The initial GDP read for Q2 was dismal. The economy contracted by 32.9%, close to the estimate of 34.5%. The week ended with UoM Consumer Sentiment falling to 72.5, down sharply from 78.1 beforehand.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- Manufacturing PMIs: Monday, 7:15 for Spain, 7:45 for Italy, final French figure at 7:50, final German one at 7:55, and final euro-zone number at 8:00. Spain and Italy’s manufacturing sector remained in contraction in June, with readings of 49.0 and 49.7, respectively. However, both PMIs are expected to push above the 50-mark, which separates contraction from expansion. Initial German and eurozone PMIs for June also improved, with releases of 50.0 and 51.1, respectively. The French initial read of 52.0 was unchanged from the May release. The final releases for France, Germany and the eurozone are expected to confirm the initial readings.
- Spanish Unemployment Change: Tuesday, 7:00. Spain’s unemployment rolls fell to 5.1 thousand in June, but this was nowhere near the estimate of -113.0 thousand. We now await the July data.
- Services PMIs: Wednesday, 7:15 for Spain, 7:45 for Italy, final French figure at 7:50, final German one at 7:55, and final euro-zone number at 8:00. The services sector showed expansion across the board in July. Germany and the eurozone both improved, with readings of 56.7 and 55.1, respectively. Spain and Italy are projected to come in slightly above the 50-level, which separates expansion from contraction. The final reads for France, Germany and the eurozone are expected to confirm the initial readings.
- Retail Sales: Wednesday, 9:00. Eurozone retail sales are the primary gauge of consumer spending. After two straight declines in double digits, retail sales shot up 17.8 percent in May. The forecast for June stands at 6.5%.
- German Factory Orders: Thursday, 6:00. Factory orders rebounded in May, with a gain of 10.4%, after a plunge of 25.8% beforehand. Another strong gain is forecast for June, with an estimate of 11.0%.
- German Industrial Production: Friday, 6:00. Industrial production also recovered in May, with gains of 7.8%. This followed a sharp decline of 17.9% beforehand. The upswing is expected to continue, with a gain of 8.3%.
EUR/USD Technical analysis
Technical lines from top to bottom:
We start with resistance at 1.2004, just above the psychologically important 1.20 level.
1.1930 is next.
1.1850 has switched to a support role following strong gains by EUR/USD last week.
1.1725 remains relevant. It is the first line of support.
1.1650 is the next support level.
1.1573 (mentioned last week) has some breathing room in support.
1.1470 has held since mid-March. It is the final support line for now.
I remain bullish on EUR/USD
The US dollar continues to retreat. Last week, EUR/USD climbed to its highest level since May 2018. With many parts of the US struggling with Covid-19, the dollar’s woes could continue this week.