Yesterday (13/8), EUR/USD retreated after six consecutive days of gains. Ending the session, the price closed at $1.11480, down 0.08% compared with the opening price ($1.11572). The pair fell to a low of $1.10790 due to the report of the European Central Bank (ECB) yesterday.
The ECB said in a summary account of its July 15-16 monetary-policy meeting that, it is ready to adjust its quantitative-easing program to respond to any market turbulence amid “unusually low” inflation and “disappointing” economic growth in the euro area.
Policy makers expressed concern that while inflation in the 19-nation currency bloc seems to have bottomed out, the region’s recovery remains threatened by the Greek crisis and by turmoil in emerging markets.
The euro-area economy probably expanded 0.4 percent in the second quarter, unchanged from the previous three months, and a final reading of inflation held at 0.2 percent in July, according to Bloomberg surveys. Eurostat in Luxembourg will release those reports at 11 a.m. on Friday. Sluggish economic growth and concerns about Greece, China are putting pressure on the euro.
Sales at U.S. retailers rose 0.6% in July, matching the median forecast of economists surveyed by Bloomberg. Eleven of 13 major categories showed gains, signaling consumers are propelling growth in the world’s largest economy. Core retail sales maintain growth at 0.4%, the same month 6. automobile sales gained 1.4% after falling 1.5% in June, with General Motors Co. and Ford Motor Co. are doing better than expected estimates guess. Online sales rose 1.5%. The positive economic data support the prospect of Fed’ rate hikes, pushing the dollar up.
According to a Reuters poll of economists published on Thursday, the U.S. Federal Reserve will probably raise interest rates twice this year, with the first increase in almost a decade coming as early as next month. The case for a September monetary policy move was bolstered by solid job gains and a rebound in wages in July. In addition, economic growth accelerated in the second quarter after bad weather constrained it at the start of the year.
After China’s surprise devaluation of the yuan, U.S. financial markets have slightly pushed rate hike expectations to December. The Fed, currently targeting a range of zero to 0.25 percent, has not raised interest rates since 2006. The midpoint of the range of federal funds rate expectations in the survey came to 0.375 percent by the end of September and 0.625 percent at the turn of the year, unchanged from a July poll.
Today, EUR/USD will be mainly affected by the developments around the Greek debt negotiations. Greek lawmakers will vote on legislation by Friday morning that’s required to unlock as much as 86 billion euros ($96 billion) of aid before a 3.2 billion-euro payment comes due to the European Central Bank on Aug. 20. The parliamentary action may assuage Greece’s lenders and would pave the way for euro-area finance ministers, who meet in Brussels on Friday, to come to a political agreement on the rescue package.
German lawmakers may vote on more aid for Greece as early as Tuesday if euro-area finance ministers back a bailout plan agreed by the Greek government and creditors. A bridge loan for Greece remains on the table in case ministers don’t sign off on a full bailout Friday. That could be approved by Germany’s budget committee rather than the full lower house, Norbert Lammert, president of the lower house of parliament, said in a letter to lawmakers Thursday.
The passed third bailout may reduce volatility in the Euro zone, thereby supporting the euro. However, in the long term, EUR/USD remains pressured downward by the difference in monetary policy between the two central banks. While the U.S. Federal Reserve expresses the confidence in the strong recovery of the economy, boosting the prospects of rate hike in the year, the European Central Bank (ECB) maintains stimulus program (QE) until September 2016.
According to the latest data, prelim GDP of Germany and France (two top economies of Europe) slipped in the second quarter. While the German economy grew only 0.4%, lower than the 0.5% predicted figures, the French had almost no growth, after growing 0.7% in the first quarter. The weak economic data add to concerns about the growth of the common currency, putting downward pressure on the euro.
At 2:15 p.m. GMT+7, EUR/USD is trading at $1.11511, rising 0.03% compared with the opening price ($1.11482) due to the positive news from Greece. The pair has the new resistance level of $1.12200 achieved on 10 July and 12 August.
Forecast: EUR/USD is still bearish. The pair may go sideways or fall today as today is the last trading day before weekend. Prices may fall toward $1.0700. However, the U.S PPI index released today will also affect this currency pair. If the data is poor, the pair is likely to go up towards resistance at $1.12200.