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#1 24-06-2020 13:49:08

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: Leading indicators are good, but genuine health risks loom

EUR/USD: Leading indicators are good, but genuine health risks loom ahead


In a market that is seemingly more worried about a return of the virus, the EUR continues to consolidate in the midst of a vast consolidation pattern whose magnitude is defined.

The conjunction of several virus situation-related news items over the last few days gradually forced market participants to be more cautious. These include the resurgence of new virus cases in China, the decision to reconfine more than 550,000 Germans, new measures to restrict the grouping of people in Porugal, the risks with the arrival of the monsoon, further congestion of the already saturated Indian infrastructures, and records of new daily cases in certain southern US states (California, New Mexico, etc.).

Traders are therefore still caught in a vice - and volatile consolidation is a perfect reflection of this psychology - between macroeconomic indicators that point to an early recovery of the world economy and these uncertainties about the pandemic's future scenario.

On these encouraging macroeconomic indicators, a good illustration yesterday in Europe with the PMIs (leading indicators of activity, calculated after past surveys of purchasing managers).

All the main European economies are in full swing, with scores above expectations, and even above 50 for Italy, both for the industrial and service components. In summary data for the monetary union as a whole, the PMI for industry reaches 47.0 and 46.9 for services.

IHS Markit says: "The deconfinement measures implemented this month or planned for the coming months have also contributed to a rebound in confidence in the private sector in Europe. For the first time in several months, the number of firms expecting a recovery in the next few months exceeds the number expecting a decline. Business prospects are at their highest level since the first quarter as optimism has picked up strongly in both manufacturing and services sectors."

Another leading indicator was also released this morning: the IFO Business Climate Indicator for Germany, at 85.9 this month, rose sharply, exceeding expectations. The Institute, through its Chairman Clement Fuest, provides details by major sectors of the economy. On industry in particular: "The industrial component of the business climate index has again risen sharply. This is due in particular to the improved business forecasts of industrial companies. Never before have these expectations risen so sharply. However, a large majority of companies still consider their current situation to be poor."

Keep an eye out on crude oil stocks in the US at 4:30 pm (Paris time).

At midday on the forex, the EUR/USD was trading at around $1.1273.
MEDIUM-TERM FORECAST

In view of the key chart factors we have mentioned, our opinion is neutral in the medium term on the pair.

We will maintain this neutral view as long as the EUR/USD is positioned between support at $1.1109 and resistance at $1.1439.

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