Oil, EUR/USD Outlook: Two Trades to Watch

Oil falls after China’s GDP underwhelms

• China Q2 GDP rises 0.8% QoQ vs 2.2% in Q1
• Libyan oil output resumes
• Oil falls away from 10-week high

Oil prices are falling at the start of the week, extending losses from Friday after China’s GDP data fueled concerns over the health of the economy and as Libya resumed production this weekend.

China’s GDP grew 0.8% QoQ in the March to June period, down from 2.2% growth in Q1 raising concerns that the post-pandemic recovery in the world’s largest importer of oil is losing momentum.

However, NBS data showed that China refineries processed 1.6% more oil in June than in May, in line with strong oil imports into China last month, which supports the view that oil demand is growing at a strong pace. That said, the fact that oil prices are slipping suggests that the market is focused on the headline GDP figures.

The softening in the oil prices comes after strong gains last week, the third straight week of gains amid a weaker USD, on hopes that a less hawkish Federal Reserve could lower the risk of a hard landing in the US and as Libyan output fell.

Two of the three Libyan oilfields that were shut last week resumed production over the weekend.

Oil outlook- technical analysis

After running into resistance at 77.30, a 10-week high, and trendline resistance, oil prices have fallen, breaking below support at 75.00.

Sellers will be looking to continue the selloff by breaking below the 100 sma at 73.50 ahead of 72.70, the June 21 high. Below here, 70.00 psychological level comes into focus.

On the upside, buyers will look for a rise above 75.00 to extend gains back towards the falling trendline resistance and 77.00, last week’s high, to create a higher high.

 

EUR/USD holds steady below 1.1250

• EUR/USD holds onto last week’s gains
• No major data releases are due today
• EUR/USD is overbought, 1.12 support in focus

EUR/USD rallied almost 2.5% last week, reaching its highest level since February 2022 and marking the best weekly performance for the pair in 8 months.

The move higher was predominantly owing to USD weakness after weaker-than-expected US CPI and PPI raised bets that the Federal Reserve was near the end of its hiking cycle. While the market almost fully pricing in a 25 basis point hiker in July, it’s pricing in just a 22% probability of another rate hike this year after July.

Meanwhile, the EUR has found support from hawkish ECB minutes, which pointed to more rate hikes from the central bank to bring inflation under control and back to towards the 2% target.

Today, the USD remains under pressure despite the risk-off mood in the market following China’s GDP data.

There is no high-impacting eurozone data due to be released today. Italian final inflation figures are unlikely to move the dial. The US economic calendar is light as well, with the New York state manufacturing index in focus today, ahead of US retail sales tomorrow.

EUR/USD outlook - technical analysis

EUR/USD rallied sharply higher, running into resistance at 1.1250 last week. Overbought conditions could see the pair stage a downward correction or consolidate around these levels in the near term.

Initial support can be seen at 1.12, the psychological level. If this level holds, the mood towards the euro could improve, and bullish could look to push higher towards 1.13.

However, a break below 1.12 brings 1.1095 into play, the May high ahead of 1.0990, the falling trendline support.