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US Session Forex Brief, June 27 – Markets Turn Cautious Again Ahead of the G20 Weekend

The sentiment has been extremely negative in financial markets during this month, which has sent safe havens surging during this time. But in the last two days we have seen a reversal in safe havens as the sentiment has improved after comments from the US Trade Secretary Mnuchin who said yesterday that the trade deal with China is 90% completed. This is not much to be honest, because it’s the 10% that counts since it includes the hottest issues such as the IP theft, opening of the Chinese market without forcing foreign companies to transfer technology to Chinese firms and currency manipulation among others. But, it came as a surprise when the trade war between the two giants is in full swing and the rhetoric has been pointing to further escalation, hence the sudden improvement in the sentiment.

But, the global economy continues to weaken, the weakness is picking up pace, and Mnuchin’s comments are not going to change that. So, markets look cautious today after pushing safe havens lower. The JPY and the CHF have been turning bullish during the European session as a result, as we head towards the G20 Summit which will start tomorrow and continue during the weekend.

Another important event is the inflation report from the Eurozone which will be released tomorrow. Inflation is expected to increase somewhat this month after the big decline we saw in May. But, the inflation report from Spain today came at half of what was expected, which is a sign for the Eurozone inflation tomorrow, although let’s not judge too early and wait for the report tomorrow.

European Session

  • German CPI Inflation MoM – Consumer price index inflation has been weak in Germany this year but we saw a jump higher in April of 1.0%, but that was due to the Easter holiday back then. Last month, CPI inflation fell to 0.2% which shows that the jump in April was due to the Easter weekend. Today, CPI was expected to remain unchanged at 0.2%, but it ticked higher to 0.3% for June.
  • Spanish CPI Inflation YoY – The CPI inflation YoY also jumped higher to 1.5% in Spain in April, but it cooled off again in May, falling to 0.8%. Inflation was expected to remain at that level again for June, but it was slashed in half, coming at 0.4% this month. This might be a sign that Eurozone inflation tomorrow might also come out weaker than expected.
  • Eurozone Final Consumer Confidence – The consumer confidence has been deteriorating in the Eurozone. It turned negative earlier this year and the first reading for June came at -7.2 points which was released earlier this month. The final reading today remained unchanged as expected. The economic confidence missed expectations coming at 103.3 points against 104.8 expected, business climate indicator declined to 0.17 points against 0.29 expected, industrial confidence came at -5.6 against -3.0 points expected and services confidence fell to 11.0 vs 12.4 expected.
  • Oil Production Cuts Will Extend As We Anticipated – The Iraqi Oil Minister said earlier today that they are working towards extension of production cuts next week. It’s too early to say if extension of production cuts will be at the same level. There are some ideas for a deeper cut among OPEC members.
  • China Replies to Mnuchin’s Comments – China’s Commerce Ministry commented this morning that cooperation is the only right option in trade talks. Urges US to immediately cancel sanctions on Chinese firms including Huawei and hopes that US will drop its wrongdoings. It is not feasible for firms to shift their supply chain out of China and calls for favourable environment ahead of Trump-Xi meeting. China’s foreign ministry spokesman also commented, saying that they are not aware of the report on tentative trade truce.

US Session

  • US Final GDP QoQ – The final GDP reading for Q1 was just released and it remained unchanged as expected at 3.1%, also the same as the prelim reading. Core PCE increased to +1.2% against +1.0% expected, the GDP price index also increased to 1.0% against +0.8% expected. The increase in inflation/price is a positive thing for the USD and should be welcomed by the FED. Q4 of last year was revised down to 2.2% after initially printing 2.6%. But personal consumption was revised down to +0.9% from +1.3% in the 2nd estimate. Consumer spending on durable goods still came negative at -2.3% but the decline looks much better than the -4.6% we saw in the 2nd estimate. Business investment on IP/software also increased to +12.0% from +7.2% prior. Exports +5.4% from +4.8%the in 2nd estimate. The decline in imports also fell to -1.9% from -2.5% previously.
  • US Unemployment Claims – The unemployment claims have remained in the 210k-220k region for many weeks apat from two weeks ago when claims jumped to 222k. They returend back to the range last week, falling to 216k which was revised higher today to 217k. But, the number for last week showed another jump to 227k this time, missing expectations of 220k.
  • China’s Xi and Japan’s Abe Agree to Promote Free and Fair Trade – These were the words of a Japanese official a while ago. He added that Abe and Xi agreed on Xi’s state visit to Japan next spring. Abe told Xi free and open Hong Kong system important.. China’s Xi offered strong support for improved relations between Japan and North Korea. He relayed Japan’s stance on abduction issue to North Korean leader Kim.

Bearish EUR/CHF

  1. The pullback higher is complete on the H4 chart
  2. The 50 SA provided resistance
  3. Fundamentals are bearish for this pair

The retrace ended at the 50 SMA

EUR/CHF has been on a bearish trend for the last two months and the downtrend has been picking up pace and making new lows as the sentiment continues to deteriorate in financial markets. We saw a pullback higher in the last two days after Mnuchin’s comments which helped improve the sentiment. But the retrace ended at the 50 SMA which has been providing resistance for this pair earlier and now the bears are back in control again. We opened a sell signal earlier below the 50 SMA, so we are bearish on this pair.

In Conclusion

So, the US GDP report came as expected for Q1 at 3.1% and there were some soft numbers there. But, the report is better than expected overall, after looking into the details. It’s not great, but most of the sub-components were revised higher. Although, the GDP report for Q2 will be important because the the US economy has weakened considerably in this quarter, while it was holding up well in Q1.

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Skerdian Meta
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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