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EUR/USD falls as economic worries build. Oil steadies at a 10-month high ahead of EIA stockpile data.
 

EUR/USD falls as economic worries build

• German industrial production falls 0.8% vs. -0.5% expected
• Eurozone Q2 GDP data expected to confirm 0.3% QoQ
• EUR/USD trades around 3-month low

EUR/USD is heading lower towards 1.07, a level briefly hit in the previous session and a 3-month low.

The euro is struggling amid a gloomy economic outlook for the region. Today, German industrial production fell more than expected in July, dropping -0.8% MoM, after falling -1.4% in June. Expectations had been for a -0.5% decline.

The data comes following German factory orders yesterday which plunged 11.7%, the worst decline since the lockdowns of 2020. Earlier in the week PMI data added to the downbeat data showing deeper than expected contraction as the composite PMI fell to 46.7.

With the outlook deteriorating the markets are questioning how much more the ECB will be able to hike rates. ECB policymaker Francois Villeroy said interest rates are near the peak. Meanwhile, ECB President Lagarde failed to give any clues about the path for interest rates in her speeches this week.

Attention now turns to Q2 GDP data which is expected to confirm the earlier reading of 0.3% QoQ.

Meanwhile, the USD is finding support from upbeat data and hawkish Fed commentary. US ISM services PMI unexpectedly rose to 54.5 in August from 52.7. New orders and prices paid rose, which could point to increased inflationary pressure.

Fed speaker Susan Collins said that the central bank could proceed cautiously with another rate hike.

US jobless claims data is due and is expected to show a slight increase to 235k up from 228k.
 

EUR/USD forecast – technical analysis

EUR/USD has been trending lower, hitting 1.07, its lowest level since mid-June. The break below the 200 sma and the RSI below 50 supports further downside.

Sellers will look to take out 1.07 to open the door to 1.0630 the May low. A break below brings 1.05 into play as a potential target.

On the upside, a bullish recovery could see the price test 1.08 the weekly high before exposing the 200 sma at 1.0820 and the falling trendline resistance at 1.0880.
 

Oil steadies at a 10-month high ahead of EIA stockpile data

• Oil rises as Saidi Arabia & Russia extend cuts
• EIA stockpiles expected to show a 2 million barrel draw
• Oil RSI is tipping into overbought territory

Oil prices are hovering around a 10-month high after booking strong gains in the previous 2 sessions.

Oil prices have been lifted by an announcement that Saudi Arabia and Russia will extend their production cuts through to the end of the year. The combined cuts totaled 1.3 million barrels a day and are in addition, to the previously agreed OPEC+ cuts.

While the supply story is boosting the price, the demand outlook could limit price gains. The weak economic outlook for China, the world’s largest importer of oil, coupled with weak manufacturing in Europe and the prospect of more rate hikes in the US as data points to a resilient economy, hurt the demand outlook.

API data revealed a 5.52-million-barrel draw for the week ending September 1^st, this was larger than the -1.42 million barrel draw expected.

EIA data later today is expected to show a 2-million-barrel draw.
 

Oil forecast – technical analysis

After rising above the falling trendline at the end of August, oil has powered higher, breaking through the 20 sma to a 10-month high of 87.80.  The RSI has tipped into overbought territory flashing a warning to buyers.

A rise above 87.80 is needed to continue the bullish run towards 90.00 an 93.20 the November high.

Meanwhile, support can be seen at 84.60 the August high, ahead of 83.30 the September low.

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