Forex Signals US Session Brief, August 14 – The Economy Slows Further in the Eurozone, Inflation Ticks Higher in UK
Skerdian Meta • 3 min read
Today we had the GDP report coming out of the Eurozone, as well as the industrial production and employment report. The economy was expected to have slowed down in Q2, with growth anticipated at 0.2% and it showed that indeed. Employment missed expectations, which is another negative indicator, while industrial production declined turned negative again in June after the short-lived increase in May and declined by 1.6%. But, before all that, the GDP report from Germany was released and the German economy showed a 0.1% contraction in Q2. Considering the recent figures, the German economy might as well fall in recession while the Eurozone economy might fall in contraction in Q3.
The inflation report from Britain was released as well this morning and it showed that CPI (consumer price index) inflation is holding up really well. In fact, headline CPI ticked higher above expectations as well as the core CPI number. So, while the real economy (manufacturing, industrial production, construction, services) have fallen in contraction in the UK, inflation and earnings are holding up really well, which is surprising. Another important thing to consider today is the inversion of the yield curve, with 10 year bond interest falling below the 2 year bonds in UK and the US. This might be a sign of another recession coming.
The European Session
- German GDP Q2 – The economy of Germany has taken a turn south this year as the economic reports have shown. Industrial production has been mostly negative for more than a year while manufacturing fell in recession and it is deepening further. So, economists were anticipating a 0.1% contraction in the economy during Q2 and today’s GDP report showed just that.
- UK CPI MoM – The inflation report which was released this morning was another positive report. Headline inflation was expected to remain unchanged at 2.0% but ticked higher to 2.1%. Core CPI also moved higher to 1.9% from 1.8% previously. CPI for July remained unchanged at 0.0% against -0.1% expected. PPI input came above expectations at 0.9%, while HPI remained unchanged at 0.9%. Another positive inflation report from the UK with ONS noting that the increase in inflationary pressures owing to bigger rises in prices of hotel rooms, computer games and game consoles relative to a year ago.
- Eurozone Flash GDP Q2 – The GDP report from the Eurozone was released after the German GDP report this morning. Growth was expected to slow down to 0.2% in Q2 from 0.4% in Q1. Flash GDP for Q2 comes as expected at 0.2% in the Eurozone. GDP YoY remained unchanged as well at 1.1% as expected.
- Eurozone Employment and Industrial Production – Flash employment change missed expectations of 0.3% for Q2 and it came at 0.2%. But, the number for Q1 was revised higher from 0.3% in the previous reading to 0.4% today. Industrial production took a negative turn again in June, declining by 1.6% against -1.4% expected.
- German Officials Are Starting to Wake Up – Germany’s economy minister Peter Altmaier was commenting via Bild, saying that GDP figures are a wake-up call and a warning signal. We are in a phase of economic weakness but not in a recession. We can avoid a recession if we take the right measure.
The US Session
- Wilbur Ross Speaking on Tariffs Delay – US commerce secretary Wilbur Ross said a while ago that tariffs delay is to avoid disrupting Christmas season. No quid pro quo from China amid decision to postpone tariffs. It is premature so see where both sides are on trade talks currently and a date has not yet been set for next round of in-person trade talks.
- US Import Price Index – The import prices posted a big decline of 0.9% last month for June which was revised lower to -1.1%. Today’s report was expected to show a 0.1% decline again in July, but prices grew by 0.2% instead last month. Import prices came at -1.8% YoY against -2.0% expected. Import prices excluding petroleum remained flat at 0.0% against -0.1% expected.
Trades in Sight
- The main trend is bullish
- The pullback lower is almost complete
- Previous candlestick closed as a doji
Pullback are good opportunities to go long on EUR/GBP
EUR/GBP has been on a bullish trend for several months now since it reversed at the end of May below 0.85. We saw another surge at the end of last month after the election of the new UK prime minister and last week buyers pushed above 0.93. Although, this week the price has slipped lower as this pair retraces down. But the retrace is almost complete now and the previous candlestick closed as a doji above the 50 SMA (yellow) which is a reversing signal. This moving average should provide support as well.
The economy of the Eurozone surely seems in trouble as it keep weakening,with growth slowing while industrial production continues to decline. The situation is similar in Britain, but inflation, employment and earnings are holding up well, although the GBP can’t turn bullish due to Brexit.