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1.1730 is the "devil's resistance level", the US-Russian summit and PPI data trigger a storm in the foreign exchange market
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Analysis]: 1.1730 is the "devil resistance level", the US-Russian summit and PPI data trigger a storm in the foreign exchange market." Hope it will be helpful to you! The original content is as follows:
On Friday (August 15), the euro rebounded slightly against the US dollar, but it was still under pressure below the 1.1700 mark, which is far from this week's high of 1.1730. The pair had fallen nearly 0.5% on Thursday, and the current rebound was mainly due to a moderate pullback in the U.S., with the market's response to the hot producer price index (PPI) announced on Thursday.
Data shows that the U.S. wholesale prices hit the largest increase in three years in July, further confirming the impact of trade tariffs and also bringing challenges to the Federal Reserve's policy formulation - seeking a balance between slowing economic growth and high inflation. Federal Reserve Chairman Powell will speak at the Jackson Hall Central Bank annual meeting next week, which may provide more clues to the monetary policy path.
In Europe, the final GDP value of the euro zone in the second quarter confirmed that the economy only grew by 0.1% month-on-month and 1.4% year-on-year, a significant slowdown from the previous value of 0.6% and 1.5%. What is even more worrying is that industrial output declines beyond expectations, highlighting the insufficient economic momentum of the euro zone and exacerbating downward pressure on the euro.
In the US economic schedule on Friday, retail sales data in July attracted much attention, and the market will use this to evaluate the impact of tariff turmoil on consumer spending. But the real focus is the summit of US-Russia leaders - US President Trump will negotiate with Russian leader Putin on ending the Russian-Ukrainian conflict.
While the market does not expect too high a breakthrough, any positive signal to an end of the conflict will be welcomed by the market and provide additional support for the euro. Analysts pointed out that if the talks release slowdowns, it may alleviate concerns about the European energy crisis and boost the economic outlook of the eurozone.
The attempts to rise in the US dollar are still limited
While strong U.S. PPI data weakened market expectations for the Fed's sharp rate cut in September, the probability of a 25 basis point cut is still fully priced. This policy expectation continues to boost risk appetite and becomes a "headwind" for the US dollar's rebound.
The Ministry of Labor data on Thursday showed that PPI in July soared by 0.9% month-on-month and 3.3% year-on-year, far exceeding market expectations of 0.2% and 2.5%. The core PPI also accelerated to a growth rate of 0.9% month-on-month and 3.7% year-on-year, significantly higher than the analysts' forecasts of 0.2% and 2.9%.
CME Federal Reserve Observation Tool shows that the expectation of a 50 basis point interest rate cut in September after the data was released was basically shattered, but the probability of a 25 basis point interest rate cut remains above 90%, which has led to continued pressure on the US dollar exchange rate. The number of initial unemployment claims fell by 3,000 to 224,000 in the week, better than expected by 228,000, temporarily alleviating concerns about deteriorating labor markets and partially offsetting the impact of PPI data.
The US retail sales data to be released at 20:30 Beijing time has attracted much attention, and is expected to increase by 0.5% month-on-month in July (the previous value is 0.6%). After excluding car sales, core retail sales are expected to grow by 0.3% month-on-month (the previous value is 0.5%).
In the euro zone, on Thursday data showed that the number of employed people increased by only 0.1% month-on-month in the second quarter (the previous value was 0.2%), and the year-on-year growth rate remained at 0.7% in line with expectations. However, industrial output fell by 1.3% month-on-month in June, far exceeding the expected decline of 1%; the year-on-year growth rate changed from 3.1% in May to a decrease of 0.2%, forming a huge gap with the market's expected growth of 1.7%, highlighting the weak trend of the manufacturing industry.
Technical analysis: Euro-USD is still limited below the trend line resistance level 1.1730
Euro-USD still maintains a bullish tendency in the short term, but the bulls are repeatedly blocked at the 1.1730 resistance level (the downward trend line since the high on July 1) and the momentum weakens. The 4-hour chart relative strength index (RSI) hovers around the 50 mid-line and shows a top divergence pattern, which sounds the alarm for bulls.
Although the exchange rate rebounded after gaining support at 1.1635 on Thursday, if it is unable to break through the above trend line, it may rekindle bear confidence. The initial support below is at 1.1590 (this level gathers both the August 11 low and the August 4 high), and stronger support is looking towards the August 5 low and the July 31 high and the July 31 high.
In the upward trend, the 1.1735 trend line constitutes a key resistance - this level not only suppressed the exchange rate many times in July, but also successfully blocked the rise on August 13. If this resistance is effectively broken through, it will mark the end of the correction market since early July. The future market targets will look at the high of July 24 1.1789 and the high of July 1 1.1830.
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