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EUR/USD falls ahead of Eurozone CPI and US core PCE. Oil steady after weak China data offsets stronger US GDP growth.
 

EUR/USD falls ahead of Eurozone CPI and US core PCE 

EUR/USD is edging lower, trading around its weekly low as investors await eurozone CPI and US core PCE data. 

Eurozone CPI is expected to cool to 5.6% YoY in June, down from 6.1% in May. Core CPI is expected to rise to 5.5% from 5.3%. 

The data comes after a mixed bag of inflation data from the previous session. While German inflation rose by more than expected to 6.4% YoY in June, this was offset by data showing that Spain is the first major eurozone economy to see inflation back below the ECB’s 2% target in almost 2 years. 

The data highlights the ECB’s struggles in setting monetary policy with such a diverse group of countries and economies.  

Earlier this week, ECB president Christine Lagarde reiterated the need to continue hiking interest rates, confirming another hike in July. However, she failed to guide for the September meeting. 

Meanwhile, the US dollar is extending gains versus its major peers ahead of core PCE data, the Federal Reserve's preferred gauge for inflation. 

Expectations are for core PCE to hold steady at 4.7% YoY in May, unchanged from April. Federal Reserve Chair Jerome Powell warned of persistent inflation this week, speaking at the ECB’s annual conference. 

The data comes after US GDP was upwardly revised to 2% QoQ annualized, from 1.3%, showing that the US economy grew faster pace in the first three months of the year than previously expected. Strong growth and hot inflation could fuel bets that the Fed may need to raise interest rates higher and for longer, boosting the USD. 
 

EUR/USD outlook – technical analysis 

EUR/USD is falling for a third day and is testing the 20 sma at 1.0855. The pair still trades within the lower bound of the range 1.1010 to 1.0855. A break below 1.0855 exposes the 100 sma at 1.0820 and deeper losses to 1.08. 

On the upside, should buyers successfully defend the 20 sma, bulls could look towards retaking the 1.09 round number ahead of 1.0960 and 1.1010 to create a higher high. 

(Click on image to enlarge)

Oil steady after weak China data offsets stronger US GDP growth 

Oil prices are holding steady on Friday after two days of gains as investors digest the stronger-than-expected US GDP data but disappointing Chinese PMI figures. 

Data showed that the Chinese manufacturing sector, a key economic driver, contracted in June while the service sector activity grew slower than expected. The data is just the latest in a string of figures from China suggesting that the post-pandemic recovery is running out of steam.  

However, the weak data does bring the potential for more stimulus measures from Beijing after the PBoC cut several interest rates in recent weeks. 

Meanwhile, weakness in China is being offset by a stronger than expected growth in the US after Q1 GDP was upwardly revised to 2% QoQ annualised. Strong growth in the world's largest oil consumer is an encouraging sign of demand. However, it raises the prospect of the Federal Reserve hiking interest rates higher and for longer. 

Investors will look to US core PCE data for further clues on the Fed’s next steps. The market is pricing in an 86% probability of a 25 bps rate hike in July. 

Crude oil is set to rise 0.85% across the week and 2.4% across the month, only its second monthly rise this year and after an 11% decline in May. 

This week, the price has received support from data showing that US inventories declined by a massive 9.6 million barrels, suggesting that demand remains strong, for now. 

Looking ahead next week the OPEC plus group will meet to discuss output. No changes are expected after a surprise production cut from Arabia in the June meeting. 
 

Oil outlook – technical analysis 

Oil trades within a descending triangle, bearish pattern. The prices again tested 67.00 this week before rebounding and are testing the 20 sma resistance just above $70.  

Buyers must overcome this hurdle to test 71.50, the 50 sma, and falling trendline resistance. A rise above 72.65, last week’s high, could confirm the breakout bringing 63.70 into focus. 

Should sellers successfully defend the 20 sma, bears will look to break below 67.00 again to create a lower low. 

(Click on image to enlarge)

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