EURO, EUROZONE CONFIDENCE DATA, ECB RATE DECISION– TALKING POINTS

Eurozone confidence data may reinforce narrative of need for ECB rate cuts

Economic reports out of the Eurozone have been tending to underperform

ECB rate decision, commentary may push EURUSD below critical support

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Euro traders will be closely watching the release of Eurozone confidence data ahead of this week’s ECB rate decision. Volatility may be relatively low upon the release as investors are probably feeling hesitant in committing capital prior to the central bank’s decision and outlook. The utility in the data lies in the fact that a worsened or at-forecast print will say a lot about consumers’ outlook and the impact it may have on growth.

When consumers are more optimistic about the future, their spending habits become more aggressive because they believe the purchases they make will not put them in a financially precarious place. However, if confidence is low due to a gloomy outlook ahead, purchasers may curtail their spending in anticipation of hard times ahead and may favor a higher saving-to-spending ratio.

Likely by no sheer coincidence, Eurozone year-on-year retail sales data is now at its weakest point since January, and consumer confidence is currently pegged at -7.2. The ECB has acknowledged that risks and inflation have been tilted to the downside in light of Brexit and slower global growth against the backdrop of the US-China trade war. Overnight index swaps are pricing in a 49 percent probability of a cut this week.

This is drastically increased to a 91 percent chance of a cut by the September meeting. Sign up for our live webinar covering the ECB rate decision!

EURUSD TECHNICAL ANALYSIS

After briefly touching resistance at 1.1275 (yellow dotted line), EURUSD subsequently retreated and is now timidly hovering above 18-month former-resistance-turned-support (red channel). Barring any sudden major developments, EURUSD may not make any major moves until the ECB rate decision. The fundamental outlook suggests the pair will capitulate and trade below the channel and the ECB may be the catalyst for it.

CHART OF THE DAY: EURUSD CAPITULATION MAY HINGE ON ECB RATE DECISION, OUTLOOK

EURSUD TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter