EUR/USD, Oil Forecast: Two Trades to Watch

EUR/USD holds above 1.12 but lacks momentum

• German PPI cools to 0.1% YoY
• Eurozone consumer confidence is due to rise to -16 from -16.1
• EUR/USD holds above 1.12 but gains lack drive

EUR/USD is edging higher on Thursday but the move higher lacks drive, despite a weaker U.S. dollar and as investors digest the latest German PPI inflation data.

EURUSD is broadly being supported by expectations that the Federal Reserve is close to the end of its rate hiking cycle whilst the ECB is expected to continue raising interest rates potentially for a few more meetings.

Data yesterday showed that core inflation in the eurozone was upwardly revised to 5.5% YoY in June, up from 5.3% in May. At the same time, headline inflation cooled from 6.1% to 5.5%.

Today German PPI cooled to 0.1% YoY in June, down from 1% but slightly above the 0% forecast.  On a monthly basis, German PPI fell -0.3%, suggesting that inflationary pressure could be lessening.

While the central bank is expected to raise interest rates next week, there are some questions over what will happen in September. ECB policymaker Klass Knot said earlier this week that there are no guarantees about what could happen at meetings after July. Should investors rein in September rate hike bets, the euro could struggle to push much higher.

Looking ahead, attention now turns to the eurozone consumer confidence, which is expected to improve very slightly two - 16 from - 16.1 in June.

Meanwhile, the USD is on the back foot once again after yesterday’s softer housing data supports the view that the Fed could hike rates just once more this year.

US jobless claims and the Philly Fed manufacturing index could influence the greenback.

EUR/USD forecast - technical analysis

EUR/USD broke out of a symmetrical triangle before running into resistance at 1.1275 and has since eased back towards 1.12. The RSI is still in overbought territory, so buyers should be cautious.

A rise above 1.1275, could bring 1.13 round number into play ahead of 1.1375, the late February high.

Meanwhile, sellers could look for a break below 1.1175, the weekly low, to extend losses towards 1.1090 the May high.

 

Oil holds above 75.00 but struggles for direction

• US recession fears ease but China’s demand outlook is mixed
• EIA stockpile draw 708k vs 2.4 million forecast
• Oil gains are capped by the falling trendline resistance

oil prices are holding steady around 75.00 amid a smaller-than-expected draw in US stockpiles, a potentially weaker demand outlook, and a weaker USD.

Oil prices fell yesterday after EIA data showed that US oil inventories fell by 708k barrels in the week ending July 14, well short of the 2.4-million-barrel draw expected. US gasoline saw a notable decline in demand.

The demand outlook for the US could be improving. The market is increasingly confidence that the Federal Reserve is close to the end of its hiking cycle. Meanwhile, US economic data is showing that the economy remains resilient. As a result, expectations of a U S recession ING happening in the next 12 months appear to be falling. Goldman Sachs is just the latest investment bank to revise down the odds over US recession. Analysts at the investment bank now see the chances of a US recession at 20% down from 25%

Meanwhile, the demand picture in China, the world's largest importer of oil, is mixed amid its slowing economy but high oil import figures.

Given that the oil demand outlook is so mixed, oil could struggle to find a clear direction from here.

Oil forecast – technical analysis

Any moves higher in oil are still being capped by the multi-month falling trendline. Buyers need to rise above 76.85, the falling trendline resistance and yesterday’s high and 77.20 the July high, to extend the near-term bull rebound from the 67.00 low.

Meanwhile, sellers could look for a break below 75.00, the June high, to test support of the 100 sma at 73.50 to creare a lower low and expose the 20 sma at 72.60. A break below 70.50 could see the bears pick up pace.