Euro Turns Weak After Core Inflation Misses Estimates

Euro Turns Weak After Core Inflation Misses Estimates
July 19, 2018


On Monday, the euro started declining against the greenback after the Eurozone statistical agency Eurostat published lower than anticipated trade surplus in May 2018. From a high of about 1.1740, the EURUSD pair fell to a low of 1.1600. The core inflation data released yesterday and the US Federal Reserve Chair Jerome Powell’s testimony to the Senate Banking Committee indicate that the EURUSD pair, which is trading at 1.1640, would decline further in the days to come.

Yesterday, the Eurostat reported a rise in the annual inflation to 2% in June, from 1.9% in May. The reported inflation was in line with the flash estimates published on June 29. However, core inflation eased to 0.9% in June, from 1.1%. The softness seen in inflation has raised doubt over whether the European Central Bank will go ahead in its plan to end the quantitative easing program by the year end. The ECB’s monetary stimulus program keeps bond yields low. The interest rates can be increased only after the stimulus program is ended. So, a possible delay in ending the stimulus program spells bad news for the euro.

The greenback, on the other hand, got another boost when the Fed Chair Jerome Powell brushed away concerns of a full blown trade war. It can be remembered that White House has announced additional import tariffs of up to 10% on Chinese goods worth $250 billion. Similarly, the US government has announced import tariffs of 10% and 25% on Aluminum and Steel from Canada, Mexico and Europe. The Europe has already shot back with its own list of US goods which would be subjected to additional import duty.

While giving the testimony to the Senate Banking Committee, Powell downplayed fears of a trade war. Notably, Powell hinted about more rate hikes in the months to come. Powell also opined that the US economy is well set for more years of growth. After staying below 2% for several years, inflation rate has moved above the targeted level.  So, Powell does not feel that as a matter to worry about. He expects the inflation to stay above the target level for some more time. Therefore, economic data and interest rate outlook support further decline of the EURUSD pair.

Technically, the EURUSD pair is moving along the descending trend line as shown in the price chart below. The currency pair faces resistance at 1.1840. Furthermore, the DSS Bressert indicator is declining towards the bearish zone. The next major support for the EURUSD pair is only at 1.1210. Therefore, we are expecting the currency pair to remain bearish in the short-term.

Considering the overall bearish sentiment surrounding the euro and technical weakness, we are planning to open two trades, one each in the Forex and binary market.

EURUSD - Technical Analysis - 19th July 2018

Using our Forex trading account, we may establish a short position near 1.1640, with a stop loss order above 1.1760. After opening the short position, we would place a buy order near 1.1420 to book profit.

Likewise, using our binary options trading account, we may invest in a put option. We wish two criteria to be satisfied before purchasing the contract from a dependable binary broker. Firstly, the EURUSD pair should be trading near 1.1640. Secondly, the contract offered by the binary broker should be valid at least for a period of one week.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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