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#1 01-07-2020 10:24:01

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: we're on the lower end of consolidation

EUR/USD: we're on the lower end of consolidation


The euro continued its nervous, choppy consolidation, at the bottom end, in a market environment dominated by fears about the evolution of the virus situation on a global scale.

On the virus front in the United States, which in some places is out of control, the latest figures impose some measure to the projections of rapid economic recovery. This is despite a battery of encouraging leading indicators that have exceeded expectations over the last few weeks. According to data from the John Hopkins University, whose work is an authority on the subject, in the United States alone, there are nearly 2,666,500 cases of the virus, with more than 119,000 deaths. The number of new cases every day, after levelling off at around 19,500, exploded, with a peak on 26 June at over 44,500.

More generally, the combination of several virus-related news stories over the last 2 weeks gradually forced responders to be more cautious. These include the resurgence of new cases in Beijing, the decision to reconfine more than 598,000 Germans, new measures to restrict the grouping of people in Portugal, the risks with the arrival of the monsoon, further congestion of Indian infrastructures, already saturated, and records of new daily cases in certain southern US states (Nevada, Texas, California and Arizona).

Geopolitics will also focus some of the attention of forex traders against the backdrop of continuing tensions between the US and China. "China has approved the Hong Kong Security Act, which should enable them to assert their power over the archipelago, which was handed back to China in 1998 by the United Kingdom. This decision led the Americans to withdraw some of the special status Hong Kong had enjoyed until then," says Mr. Boy, GI France analyst.

For the time being, two rather interesting statistics for the single currency, on paper, are not sufficient to provide the necessary support in practice. French consumer spending exploded (+37.1%) in May, in the midst of the process of coming out of containment, beyond expectations, compared to a 18.9% drop (revised data) in April. More importantly, inflation in Europe came out at +0.4% on an annualised basis last month, where on average, economists and analysts surveyed saw a slight contraction in prices.

The Chinese manufacturing PMI published overnight came out above expectations, at 51.0.

Right now, the EUR/USD is trading at around $1.1226. 

KEY CHART ELEMENTS

After crossing the upper bound of a range without any hesitation at the end of May, on the basis of accelerated volatility and subsequent upward extension, the spot released a significant potential for buying energy, until it returned almost to its early March highs. For the time being, a breathing phase, in the form of nerve consolidation, is expected. This broad consolidation has finally defined its magnitude (1.1169/1.1439). It is in this band that erratic oscillations are now envisaged.

MEDIUM-TERM FORECAST

In view of the key chart factors we have mentioned, our opinion of the EUR/USD is neutral in the medium term.

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

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