Euro rallies after another nondescript attempt to continue the downward correction. However, judging by the chart, the bulls seem to be gradually regaining the initiative, but there is still hope for a larger price decrease in risk assets.
Meanwhile, gold passes the psychological level of 2,000 and is still rising even further in the market.
EUR / USD
The statements of the Bundesbank yesterday supported the European currency, with which investors enthusiastically embraced the decision of the bank to continue to participate in the ECB's bond purchase program. The bank said that the ECB was able to present all the requirements asked by the German court, and explanations were provided to justify the need of the said program. Because of this, investor confidence significantly increased, which will provide support for risk assets in the future.
A report was also released yesterday, which indicated that the European Central Bank, under the PEPP program, is inclined to acquire public sector assets, while the share of corporate bonds and commercial paper is gradually decreasing in its portfolio. According to the figures, purchases of government securities accounted for more than 96% of PEPP's net acquisitions in the two summer months, and the total amount was € 206 billion. One interesting fact is the ECB's reduction in the volume of purchases of Italian assets, as back in May of this year, their share accounted for 21.6% of the total, but now the ECB has acquired securities only by 19.6%. This suggests that the decision to create an EU recovery fund allowed the regulator to shift its focus and start helping other countries that also need financial support.
A number of macroeconomic reports were also published yesterday, which, although deserves special attention, did not greatly affect the rate of the European currency.
One of it is the data on PPI in the eurozone, which, according to the report, rose 0.7% in June compared to May, and declined by 3.7% compared to the same period last year. The forecasted figures were + 0.6% and -3.8%, respectively.
As for core inflation, the value fell by only 0.6% y / y, which suggests that the sharp decline in energy prices during the pandemic, as well as its recovery afterwards, were disregarded in the calculation of the overall indicator since at that time, volatility was still prohibitive.
Meanwhile, demand for the dollar continues to decline due to increasing coronavirus infections in a number of US states. Other countries are also considering re-imposing restrictions, which will certainly have an impact on sentiment and economic activity. However, if more stringent social distancing and quarantine measures are taken not only in the United States, demand for the dollar will return, which will sink risk assets in the market. Hence, it is necessary to continue monitoring the situation with the coronavirus pandemic.
With regards to macroeconomic data in the United States, particular attention was drawn on the report on manufacturing orders, which, although continued to grow for the second month, slowed significantly as compared to its figure the previous month. According to the data published by the US Department of Commerce, orders rose 6.2% in June after rising 7.7% in May this year. Most likely, growth will maintain in July, but it is already clear that the recovery of the US economy is slowing down due to the increase in the number of cases of coronavirus infection.
Another not very attractive indicator was the data on business activity in New York, which, according to the report of ISM, rose 53.5 points in July against 39.5 points in June. Meanwhile, today, non-manufacturing indicators and composite indices will be published, on the basis of which it will be possible to draw up the overall picture of activity in the US and the eurozone.
As for the technical picture of the EUR/USD pair, the main focus of the bulls is to hold the quote at the support level of 1.1770, since this level determines whether the upward movement will continue or not. They will also attempt to breakout and consolidate the quote above the resistance level of 1.1860, as such will lead to a stronger bullish momentum and test of the 1.1930 and 1.2000 highs. But if demand on risk assets decrease after the publication of today's data, a breakout from the support level of 1.1770 will plunge the EUR/USD pair down into the weekly lows and towards the level of 1.1650.
Gold
Gold has surpassed a price level of $ 2,000 per ounce and will most likely continue to rise due to increasing demand in the market, caused by the declining yield on US government bonds, which dodges the pressure on the US dollar. In addition, the struggle between Republicans and Democrats for the presidency in the United States is only gaining momentum, which also scares off investors.
The rise on COVID-19 infections in the US and the world also puts constant fear on traders, since quarantine restrictions may be re-introduced at any time. Many are betting that the upward trend of gold will continue, long as the dollar declines and interest rates remain near zero in many regions of the world.
Thus, for the technical picture of gold, a break of the resistance level of 2,030 will easily lead to an update of the 2,060 and 2,100 highs, but in the event of a downward correction, the bulls will protect the support level of 2,000, a breakout of which could lead to a quick sale to the level of 1960, where traders can safely open new long positions.
