Yesterday, the European Central Bank held its meeting and they sounded pretty dovish. But, markets were anticipating that, considering the weak economic data of the recent months from the Eurozone. What traders were hoping for this time, was a set date for a broader stimulus package, such as rate cuts and QE. Westpac expects the ECB to introdyce such a package in their September meeting, but markets wanted to hear that from the ECB, which they didn’t and as a result, the Euro climbed around 60 pips higher.

Today markets are concentrated mostly on the GBP and USD. We have been hearing comments from French, German,  and other EU officials today that the Brexit the withdrawal agreement won’t be reopened and the Irish border backstop won’t be removed. GBP traders were hoping for something more now that Boris Johnson is the new Prime Minister of Britain, but the rejection from the EU has sent the GBP sliding lower today.

Although, the main thing in traders’ mind today is the GDP report from the US. The US economy has weakened considerably in Q2 of this year, so the GDP is expected to come down to 1.8% in Q2 from 3.1% in Q1. But, we might get a surprise, which would send the USD higher, so USD traders have been waiting on the sidelines.

The European Session

• German Import Prices – Import prices turned negative at the end of last year in Germany as crude Oil prices went in a free-fall. But, the they turned positive again tin Q1 of this year after Oil prices started climbing again. Although, in May they turned negative again, declining by 0.1%. In June, import prices were expected to turn even more negative and decline by 0.8%, but the actual number was much worse coming at -1.4%, which will affect inflation negatively in the coming months.
• European Leaders Giving the Red Light to Boris Johnson – Brexiteers were hoping for a better deal now that Boris Johnson became the new PM of Britain, but it doesn’t seem like EU leaders will restart things from the beginning. Early this morning, the French European affairs minister Amélie de Montchalin reiterated that there won’t be a renegotiation of Brexit deal. She added that France is ready to work with Boris Johnson on Brexit if UK wants to leave in an orderly manner, already have an agreement in place. UK must have a good reason to push back 31 October deadline. Then came Norbert Röttgen, the head of the Foreign Affairs Committee in the German parliament who delivered this tweet “Dear @BorisJohnson: Neither boastful speeches nor bullying will succeed in making us give up #EU principles and unity. Will stay cool instead. Sadly, both in words and deeds – has appointed a cabinet of #Brexiteers – #Johnson fails to reach out to country and continent. #Brexit”. Ireland’s Coveney took his turn saying that the approach taken by Johnson is not the basis for an agreement. He added that yesterday was a very bad day from a Brexit negotiation perspective and Johnson’s comments in parliament have been very unhelpful. His comments seem designed to set the UK on a collision course with the EU.
• Economists Cut Forecasts for the Eurozone – The ECB released the results of its latest survey of professional forecasters whish are as below:
• 2019 inflation seen at 1.3% (previously 1.4%)
• 2020 inflation seen at 1.4% (previously 1.5%)
• 2021 inflation seen at 1.5% (previously 1.6%)
• 2019 real GDP growth seen at 1.2% (unchanged)
• 2020 real GDP growth seen at 1.3% (previously 1.4%)
• 2021 real GDP growth seen at 1.4% (unchanged)
• Erdogan Wants More Rate Cuts – Turkish president Tayip Erdogan said a while ago that the massive interest rate cut of 4.25% is not enough; it will continue until year-end and they still need to continue cutting rates gradually. He added that inflation will come down when interest rate is lower and he has been defending the point of view that 24% interest rate is very high for Turkey.

The US Session

• Germans Fear Deflation Too Now – Germans have been against the ECB turning dovish for a long time but now they seem to have shifted their view after the softening inflation in the Eurozone. Deutsche Bank said that we don’t doubt Draghi’s powers of persuasion he will get the job done for the ECB to pursue more easing monetary policy. “The latest policy communications were a tale of two halves, however. In a departure from the norm, the Policy Decision statement was used to convey the primary policy message. There was an opportunity for Draghi to reinforce the dovish tone in the press conference, but the Q&A did not achieve this. If anything, the effect was the opposite. In that sense, Draghi has only half delivered on Sintra. He now has seven weeks to convince the Council to keep with him and deliver a strong enough easing package. Given his powers of persuasion, we don’t doubt him.”
• USD Advance GDP Q2 – GDP report for Q2 will be released shortly which we will cover in our economic calendar section. The GDP is expected to come down from 3.2% in Q1 which was revised lower to 3.1%, to 1.8%. We might get a surprise on both directions, so traders are just waiting on the sidelines.
• Advance GDP Price Index Q2 – The GDP price index was holding up well last year but in Q1 the price index fell to just 0.9%. Although a big jump is expected for Q2 by 4.0%. That is a bit surprising given that inflation has cooled off considerably in Q2, but let’s see.

Trades in Sight

Bearish US WTI Crude

• The main trend is bearish
• The pullback higher is complete
• The 50 SMA is pushing the price down

The 50 SMA is providing resistance for WTI crude

US WTI crude Oil turned bearish last week, falling from around $61 to below $55. This week we have seen a retrace higher but the 50 SMA is providing solid resistance, turning the price lower on Wednesday and again yesterday after the retraces higher. Now the price has retraced higher again and the 50 MA has slipped lower, which should turn the price lower again.

In Conclusion

The US GDP report for Q2 will be released in a few minutes and traders are just waiting to get a clue from it. The FED meeting is next Wednesday when they are expected to cut interest rates, although markets still don’t know if the FED will enter a monetary easing period or just cut interest rates once this month. So, the GDP report will shed a little bit of light on that.