At first glance, everything seems logical, and in general, the single European currency somewhat strengthened its position at the end of the day. After all, data on producer prices turned out to be better than forecasts. However, it is surprising that the euro fell after European data was released. But the dollar has been rapidly losing its positions since the beginning of the US session. There is a feeling that European traders do not care about all the data and inflationary dynamics there, and they are more concerned about the fact that the market is overheated and a serious correction has long been overdue. But American traders are not interested in all this, and they are concerned about the issue of macroeconomic dynamics. In general, the mood of traders on both sides is clearly not the same. As a result, the market is dangling in uncertainty and can not decide which way to swing.
If we talk about producer prices in Europe, the rate of their decline slowed down from -5.0% to -3.7%. That turned out to be better than forecasted -4.0%. Over the month, producer prices rose 0.7%, while a 0.4% rise was expected. Given the fact that the producer price index is a leading indicator for inflation, we can safely conclude that inflation in Europe is more likely to rise than decline. More precisely, the probability of a slowdown in inflation approaches zero. And without a doubt, this is an extremely positive factor. However, only American traders reacted to this. The European ones, apparently, decided not to make hasty conclusions and prefer to wait for data directly on inflation.
Producer Price Index (Europe):
But if European traders could ignore the data on producer prices, then it is clearly not possible to dismiss retail sales, with all their desire to carry out a correction. Moreover, the rate of decline in retail sales by -5.1% should be replaced by growth by 0.2%. Such an impressive jump and transition from recession to growth should inevitably cause the euro to strengthen even more. In addition, the final data on business activity indices will be released today. And if we recall the fact that the PMI in the manufacturing sector turned out to be better than expected, then there is practically no doubt that the composite PMI will grow not from 48.5 to 54.8, but somewhat more. There is also a possibility that the service sector PMI, which should rise from 48.3 to 55.1, will increase slightly more. So the expectations for European data are purely positive, and the growth prospects of the single currency are very, very high.
Retail Sales (Europe):
But the situation is somewhat different with US data. If we recall that the manufacturing sector PMI did not grow as much as expected, then even if the final data for the index in the services sector coincide with the forecasts, the composite index will still not grow as much as expected. The index of business activity in the service sector itself should rise from 47.9 to 49.6. And here it is noteworthy that the index is still below the 50-point mark, which separates stagnation from growth. And the macroeconomic dynamics in the United States has not been particularly encouraging lately, so it is possible that the growth will be somewhat more modest. The composite index of business activity will definitely not grow from 47.9 to 50.0, as the preliminary estimate showed. All this contrasts strongly with European PMIs, and is not in favor of the dollar. The only thing that can somehow smooth out the negative due to US data is the ADP employment data. This very employment should increase by 1,550,000. However, despite the seemingly impressive growth, this is not enough. In April, employment fell by almost 20 million, and so far it is pointless to talk about its recovery. Moreover, the rate of employment growth is steadily declining. In other words, the labor market is more likely to stabilize at current levels, which cannot please anyone.
Employment Change from ADP (United States):
The euro/dollar pair continues to demonstrate high activity, during which the quote managed to temporarily form fluctuation within the values of 1.1700/1.1800, after which it can confidently consolidate above 1.1800, which may mean the end of the correction course in this period. Maintaining the upward trend with such a significant change in the exchange rate of the European currency indicates the continuation of speculative interest, which gives a consistently high volatility in the market.
Looking at the trading chart in general terms (daily period), you can see the price fluctuating at the conditional high, which indicates a slowdown in the inertia course.
We can assume a temporary price fluctuation within the amplitude of 1.1790/1.1820, which will help traders identify the most optimal points for local positions.
Depending on the consolidation points relative to the boundaries of 1.1790/1.1820, the subsequent local move will be clear.
We will specify all of the above into trading signals:
- We consider long positions if the price is pinned higher than 1.1825, with the prospect of a move to 1.1865-1.1900.
- Short positions, we consider if the price is pinned below 1.1790, with the prospect of a move to 1.1750.
From the point of view of complex indicator analysis, we see that the indicators of technical instruments on the minute and hour periods signal a purchase by consolidating the price higher than 1.1800. The daily period, as before, is focused on upward inertia, signaling purchases.
