EUR/USD: German economy and US jobs in the limelight

Traders won't have any benchmarks from Wall Street today, a holiday in the US (Independence Day). A very narrow margin evolution is expected on the EUR/USD, which continues to show both the relief on the inflation front, in particular the US, and the stronger than expected slowdown in the German economy.

Last week, a flurry of relatively good indicators, including the Conference Board's consumer confidence and the PCE index, the US Federal Reserve's (Fed) preferred gauge for measuring inflation, has fueled investor optimism recently. The euro, one of the reference barometers of risk appetite, mechanically resisted.

Regarding the final data of the PMI industrial activity indicators in the Euro Zone for June, published yesterday, it is particularly the German component that challenges, coming out below the first estimates, at 40.6, the lowest since June 2020.

"It appears that the (capital intensive) manufacturing sector is taking the brunt of the ECB's interest rate hikes with increasing difficulty, as evidenced in particular by the first decline in employment recorded since January 2021 and the one of the strongest declines in purchasing activity since the start of the survey", comments Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

"On the demand side, it was in Germany (followed by Italy and France) that companies reported the weakest new order entries at the end of the second quarter," he adds.

We are therefore closely monitoring the ZEW index of confidence in the German economy next week. Especially since the May trade surplus has just come out well below market expectations.

The big event of the week will undoubtedly be the NFP report on Friday. The traditional monthly federal private employment report will provide additional clues on sectors under stress and its consequences for wage dynamics, and will help refine the probabilities of a federal rate hike for the FOMC deadline at the end of the month.

Right now, the EUR/USD is trading at $1.0900.

KEY GRAPHIC ELEMENTS

The EUR/USD now sees its 20-day moving average (in dark blue) cut upwards against its 50-day counterpart (in orange), which requires us, according to the established trading plan, to cut our positions short, waiting for suitable signals. Neutral advice offered, especially in the absence of benchmarks from Wall Street.

MEDIUM TERM FORECAST

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

We will maintain this neutral opinion as long as the EUR/USD parity prices are positioned between the support at $1.0784 and the resistance at $1.1000.