Euro Zone’s preliminary August HICP rate in focus

The USD edged higher against its counterparts in today’s Asian session and seems ready to break a five-day losing streak. Monetary-wise, the market’s dovish expectations for the Fed’s intentions remain, weighing on the USD. Also, the possibility of Trump intervening verbally on the Fed’s work and the replacements that are to take place in the Fed, by Trump’s appointments, tend to enhance the market’s dovish expectations. For the time being, the bank is expected to cut rates in its next meeting, 17th of September and the release of the US employment report for August next Friday may decisively sway the market’s expectations. For the time being, on the one hand, the cooling of the US employment market tends to amplify the possibility of a rate cut, while on the other, the fact that US inflation remains stubbornly high tends to advise caution for any easing of the Fed’s monetary policy. Today, we highlight the release of the US ISM manufacturing PMI figure for August which is to gauge economic activity in the relative sector for the past month.

Across the Atlantic, we highlight the release of the Euro Zone’s preliminary HICP rate for August. The rate is expected to remain unchanged at 2.0%yy if compared to July, remaining at the ECB’s target, thus implying a relatively neutral position. Yet should we see an acceleration, we may see the common currency getting some support as there may be some pressure on the bank to remain on hold for longer. On a fundamental level, besides the war in Ukraine, we highlight on a fiscal level, the possibility for political instability in France. The French economy is facing an increasing debt and on a fiscal level, it’s systemic for the Euro area as it’s the second largest economy in the area. Should we see the market’s concerns for the political instability in France growing, we may see them weighing on the EUR.

On a technical level, EUR/USD continued to edge higher yesterday, yet in general remains well between the 1.1825 (R1) resistance line and the 1.1570 (S1) support level. The pair remained within the prementioned boundaries for the past two months and the narrowing of the Bollinger bands over the past week, tends to imply lower volatility for the pair, which in turn may allow the sideways motion to be maintained. Also the RSI indicator is running along the reading of 50, implying a rather indecisive market for the pair. Hence we maintain our bias for the sideways motion to continue as long as the pair’s price action remains between the R1 and the S1. For a bullish outlook to emerge we would require the pair to break the 1.1825 (R1) resistance line and start aiming for the 1.2115 (R2) resistance base. For a bearish outlook to emerge, we would require the pair to break the 1.1570 (S1) support line and start nearing the 1.1265 (S2) support barrier.

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Today we note the release of Canada’s manufacturing PMI figures, both for August. On a monetary level, we note that ECB Board members Elderson and Machado speak. In tomorrow’s Asian session we get China’s Rating Dog services PMI figure for August and we highlight Australia’s GDP for Q2 and a possible acceleration beyond market expectations could revive AUD bulls.

Against the USD the Aussie seems to be weakening in today’s Asian session yet AUD/USD is in the midst of the 0.6620 (R1) and the 0.6375 (S1) level. The RSI indicator has dropped to the reading of 50, implying an erasing of any bullish tendencies currently and the Bollinger bands remain relatively stable. For the time being we maintain our bias for the range-bound movement of the pair to be continued within the boundaries prementioned. Should the bulls take over, we may see the pair breaking the 0.6620 (R1) resistance line and start aiming for the 0.6940 (R2) resistance level. Should the bears be in charge, we may see AUD/USD breaking the 0.6375 (S1) support line and start aiming for the 0.6130 (S2) support level.