Even though the President of the ECB is bullish on the Eurozone, the single currency is struggling to find support as traders bid up the US dollar. Yield differentials, US fiscal expansion, and monetary policy is making the US dollar more appealing.
Today’s economic calendar has several data points related to Manufacturing PMI’s which could be market moving. There is several European Manufacturing PMI’s during the opening hour of the London session, which will follow a disappointing reading from the Chinese Caixin Final reading for June.
The EU unemployment rate is forecasted to be 8% in May, which would match the previous reading and there has been a more Hawkish tone from ECB President Lagarde at the London opening bell, where she stated, “The improved economic outlook on the back of rapid progress in vaccination campaigns has reduced the probability of severe scenarios”.
Traders’ sentiment is bullish the euro versus the US dollar and the extreme reading of 78% is proving to be great for the contrarian trader. These holders of longs will be squeezed out of their position and the higher the bullish sentiment goes, the more likely we are to test significant swing lows and their stops.
April 2021 swing low around 1.1700 looks like the best initial target with only a rising trend line and possible stochastic divergence acting as potential support. This morning’s retail sales in Germany increased 4.2% month-on-month in May, after a positive revision for April. The data point today came in under market expectations of a 5% rise as the country further eased coronavirus restrictions.
A 3-month low for the Caixin China General Manufacturing PMI, which fell to 51.3 in June 2021 from 52 in May, coming in below market estimates of 51.8. According to IHS Markit, the Chinese manufacturing sector expanded at a softer pace in June, with firms recording slower increases in both output and new orders.
The US dollar versus China’s Yuan is possibly in an accumulation phase, with price action testing through the resistance as shown by the Ichimoku cloud. April’s swing high is the most significant swing high/resistance and a break of that would be a signal that prices of the US dollar are likely to go higher for longer.
Today OPEC+ meet up to discuss output increases with one eye on the rising economic disruptions due to the Delta variant of COVID-19. The market is expecting a small increase in production to be agreed upon, with a possible 500k barrels per day the consensus figure. The oil chart shows how strong the WTI contract is in both price action and momentum. A supply deficit needs to be addressed by OPEC+ but today’s meeting is very unlikely to announce the extra 2 million barrels per day, some analysts believe is needed to curtail the shortfall.
The US ISM Manufacturing PMI may be the market mover today ahead of the NFP and jobs-related data tomorrow. As the USA’s economy opens up from the coronavirus (COVID-19) pandemic, there are signs of pent-up demand for many goods and components. Supply chain disruptions through constraints are causing an escalation in prices and inflationary pressure. US GDP growing at 6.4 percent during the first quarter of this year indicates things are going in the right direction, but US ISM Manufacturing data peaked in March and a miss today would be bearish for the US dollar.