Economic growth lost some more pace in Europe during the Q2

Forex Signals US Session Brief, July 31 – Inflation Up, GDP Down in Europe

Posted Tuesday, July 31, 2018 by
Skerdian Meta • 4 min read

Yesterday was inflation day for Germany and Spain, and today we had the Italian and French CPI (consumer price index) inflation as well as the Eurozone CPI report released in the European session. While the German inflation was a bit on the soft side compared to expectations yesterday, today the French and Italian CPI inflation came out a bit stronger than anticipated. That had its effect on the overall Eurozone inflation. Both the CPI and core CPI ticked higher and now the ECB target is reached and overtaken.

In forex, the USD has been under some pressure during the European session and it is still slipping lower at the beginning of the US session. The Bank of Japan Chairman Kuroda sounded pretty dovish in the Asian session, pleading to keep the monetary policy loose for as long as it takes, until inflation picks up in Japan as well as in the other developed economies. But, inflation is pretty low in Japan and it is not going anywhere anytime soon and the markets know that. So, that means that the BOJ will keep pumping money in the markets and will keep the negative rates policy. That has improved the sentiment, hence the progress of risk currencies against the USD and other safe-haven assets. Bitcoin, on the other hand, is falling in what seems to be a retrace of the uptrend that started late last month.

The European Session

German Retail Sales – Expected to grow by 1.1%, German retail sales grew by 1.2% this month which is a nice turnaround from the big 2.1% decline we saw last month. The previous month came at 2.3% but the previous three months were all negative, so while we can’t say the trend has turned bullish yet, at least the bearish trend has ended.

French Prelim CPI MoM – CPI inflation declined by 0.1% in France, but that’s better than expectations which were for a 0.3% decline. This is the first negative month since February.

Italian Prelim CPI MoM – Inflation picked up by 0.3% in Italy this month, against 0.2% expected. Although, last month’s was revised lower from 0.3% to 0.2%. Inflation has been picking up nicely in the last several months in Italy nonetheless.

Eurozone Prelim CPI MoM – The core inflation was expected to remain unchanged at 1.0% in the Eurozone, but it ticked higher to 1.1%. The main inflation number also ticked higher to 2.1% from 2.0%. Now, the 2% target from the ECB has been surpassed, which is a positive signal for the Euro since it means that the ECB has the road open to start hiking interest rates.

Spanish Flash GDP QoQ – Spanish GDP was expected to have grown by 0.7% in Q2 but the actual number came at 0.6%. The trend is a bit worrying here since it has been declining constantly since Q2 last year when Spanish GDP was growing by 0.9% quarterly.

Eurozone Prelim Flash GDP – The Eurozone Q2 GDP missed expectations by 0.1% as it came at 0.3%. The trend here doesn’t look good either because last year the Eurozone economy was growing by 0.6%, but on Q1 of 2018, the growth slowed to 0.4% and now the Q2 comes at 0.3%.

Eurozone Unemployment Rate – The unemployment rate fell to 8.3% as expected in the Eurozone, from 8.4% last month. The trend here is promising and this month’s unemployment rate didn’t get affected by the 0.2% increase in the Italian unemployment rate.

The US Session

Canadian GDP MoM – The Canadian GDP grew by 0.5% last month, which is the biggest increase so far this year. I think Donald Trump must be jealous of that because his tariffs on Canadian products are not keeping the Canadian GDP down. Well, Canadians have switched to buying their own products from what I have heard, so that must be helpful.

US Core Price Index YoY – The yearly core price index came at 1.9% from 2.0% previously. This is still a pretty good number since this is the core inflation number and it is still near the FED’s 2% target which is for the headline inflation number, not the core one.

US Personal Spending MoM – Personal spending grew by 0.4% this month as expected, but last month’s number was revised higher to 0.5% from 0.2%, which is helping the USD.

US Personal Income MoM – Personal income grew by 0.4% as expected and the same as last month. Nothing to be too excited about, but it comes back at this level after slowing to 0.3% in April and May.

US Employment Cost Index QoQ – The employment cost index, which is an indicator for wages and salaries, grew by 0.6%. That is 0.1% lower than expectations and 0.2% lower than the previous quarter.

US CB Consumer Confidence – The consumer confidence is expected at 126.5 points which is pretty much the same as last month. It is interesting to see if Trump’s tariffs have affected the consumer sentiment in the US.

Trades in Sight

Bearish EUR/CHF

  1. The trend has been bearish for the last three weeks
  2. The retrace up is almost complete
  3. The previous candlestick has formed an upside-down hammer
  4. The 20 SMA is providing solid resistance

The 20 SMA is not letting go today

A while ago we opened a sell forex trade in EUR/CHF. This forex pair has been trading on a bearish trend for nearly three weeks now, but at the moment it is retracing higher. Although, the retrace might be over soon because the price is overbought on the hourly chart and the stochastic is approaching overbought levels on the H4 chart. Besides that, the 20 SMA (grey) has been providing solid resistance in the last two weeks and it is doing the same today. Another bearish indicator is the previous candlestick. It has formed an upside-down hammer which is a reversing signal, particularly after a retrace higher such as in this occasion. So, we have a bearish bias for this pair and expect it to reverse lower soon.

In Conclusion

Inflation in Europe ticked higher today and surpassed the ECB target, but the GDP figures weren’t too promising, unlike Draghi’s promise last week. The USD has found its feet again now after the US data was released, so let’s see if we can get a few trades going.

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About the author

Skerdian Meta is our Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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