EUR/USD, Oil Outlook: Two Trades to Watch

EUR/USD holds steady ahead of PPI & FOMC minutes

• Eurozone services PMI to slip to 52.4 in June
• PPI forecast to fall -1.3% YoY in May
• US FOMC minutes due

EUR/USD it's holding steady in risk-off trade and as investors look ahead to a busy day on the economic calendar.

The market mood has deteriorated, and the USD is drawing safe-haven bids after weaker-than-expected China services PMI and as US-Sino tech war concerns rise.

Still, the euro is supported following hawkish comments from ECB President Christine Lagarde last week at the ECB annual conference, who was clear that more rate hikes were needed to tame inflation in the region.

Yet concerns over the health of the eurozone economy and signs of cooling inflation could limit the upside to the euro.

Services PMI data is expected to show that growth slowed to 52.4 in June, down from 55.1 in May. The composite PMI is expected to stall at 50.3, down from 52.8, after weak manufacturing PMI on Monday. The level 50 separates expansion from contraction.

Also in focus will be eurozone PPI, which is expected to fall -1.3% YoY in May, down from 1% in 1% in April. Since PPI is considered a lead indicator for CPI, falling PPI could take pressure off the ECB to keep hiking rates aggressively.

The US dollar is rising against its major peers as traders return to their desks following the 4th of July holiday. Downbeat made support safe-haven flows as investors look ahead to the release of the minutes from the June FOMC meeting.

At the meeting, the Fed paused rate hikes for the first time this cycle, although the US central bank indicated that two more rate hikes could be expected this year.

Markets are currently pricing in an almost 90% probability of a 25 basis point rate rise this month. Hawkish minutes could fuel bets of a second hike between now and December. However, the minutes could be perceived as outdated, given the data releases, since the meeting included softer-than-expected core PCA inflation figures.

EUR/USD outlook – technical analysis

EUR/USD continues to trade below its 2-week falling trendline but finds support from the 50 sma at 1.0870. The RSI is neutral, giving away few clues.

Sellers will look for a break below 1.0870 and 1.0835, last week’s low, to expose 1.0775, the multi-month rising trendline support.

On the upside, should the 50 sma hold, buyers will look to break out above the falling trendline around 1.09 to bring 1.0935, the weekly high, into play. Above here, bulls could set their sights on 1.1010, the June high.

 

 

Oil trades flat with eyes on the OPEC meeting, API inventory data

• China PMI data disappoints
• OPEC+ meet today after Russia & Saudi Arabia’s output cuts
• API inventory data expected to show a 1.8 million draw

Crude oil has been struggling for direction as investors look ahead to the start of the OPEC plus meeting in Vienna.

Oil prices have had a mixed week so far as investors worry about a global economic slowdown weighing on demand while also weighing up news of production cuts from Saudi Arabia and Russia earlier this week.

Lingering worries over global economic growth have been magnified after weaker-than-expected Chinese data. Chinese services PMI slipped to 53.9, which comes after manufacturing data earlier in the week showed that the sector stalled in June. Weak data from China, the world’s largest oil importer, has raised concerns that the economic recovery is losing momentum and that stimulus from Chinese authorities has had limited impact.

Looking ahead to the minutes from the June FOMC meeting could provide further clues on the Fed’s outlook. A hawkish-sounding Fed and USD strength could weigh on the price of oil.

The OPEC+ group kick off a two-day meeting today. The group has been cutting oil output since November amid flagging prices.

This week's latest developments came from Saudi Arabia, the world's largest crude exporter, which said it would extend voluntary output cuts of 1,000,000 barrels per day to August. Russia also said that they would cut out in August by 500k bpd.

API inventory data is expected to be released and forecast to fall by 1.8 million barrels in the week ending June 30th. This would mark the third straight week of declines and could help support oil prices. A large draw could support oil prices.

Oil outlook – technical analysis

After rebounding from 67.00, oil is attempting to break out above the 50 sma and falling trendline resistance dating back to mid-April. A rise above 71.80, the weekly high, could fuel a stronger recovery to 72.70 the mid-June high, and a test of the 100 sma at 73.80.

Support can be seen at 67.00 the June low, with a break below here needed to extend the bearish trend.