EURO PRICE TURNS TO EUROZONE GDP & INFLATION DATA AFTER JULY ECB MEETING

EUR currency pairs look to high-impact Eurozone GDP and inflation data slated for release next week

The Euro could fall if Eurozone economic data continues to disappoint after the July ECB meeting primed markets for future monetary stimulus

Spot EUR/JPY may provide the cleanest look at the forex market’s reaction to upcoming Eurozone economic data

07/31 THURSDAY | 09:00 GMT | EUR Eurozone GDP (2Q A) & Eurozone CPI (JUL A)

Next week’s economic calendar is jam-packed with event risk and Wednesday’s release of Eurozone GDP and CPI data at 9:00 GMT is certainly among the top 5 forex trading events. The closely watched economic indicators will follow last week’s July ECB meeting where central bank President Mario Draghi paved the road to ease monetary policy in the near future.

Although Draghi mentioned that a rate cut was not discussed among the ECB Governing Council’s most recent meeting, he did state that “a significant degree of monetary stimulus continues to be necessary for financial conditions to remain very favorable and support the euro area expansion, the ongoing build-up of domestic price pressures and headline inflation developments over the medium term.”

EUROZONE GDP GROWTH CHART (QUARTERLY, YEAR-OVER-YEAR)

EUROZONE CPI CHART (MONTHLY, YEAR-OVER-YEAR)

Stubbornly-sluggish economic activity across the Euro area is likely to be reiterated in the Q2 Eurozone GDP and CPI report, which stands to follow weaker-than-expected Eurozone PMI data just released. ECB President Drahi expressed concern on inflation and conveyed that the Governing Council “will act with same determination whether inflation is above or below the inflation aim” of around 2%. Moreover, Draghi also said that outlook is getting worse and worse in manufacturing.

As such, the Euro could face significant downside if the headline EU economic data disappoints. Eurozone Q2 GDP (YoY) is estimated to be reported 0.2% lower than Q1 at 1.0% whereas Eurozone CPI for July (YoY) is expected to come in 0.1% lower than the prior month’s reading of 1.1% according to Bloomberg’s survey of economists.

Pairs to Watch: EURUSD, EURGBP, EURJPY

SPOT EUR/JPY TECHNICAL ANALYSIS: DAILY PRICE CHART (SEPTEMBER 2018 TO JULY 2019)

EUR/JPY looks towards the end of July on shaky footing, continuing to hold below the rising trendline from the 2012 and 2016 yearly swing lows. Bearish momentum has eased off in recent days, as both daily MACD and Slow Stochastics have turned higher (albeit still in bearish territory). Price is still holding below the daily 21-EMA.

Now that EUR/JPY has broken through the June swing low at 120.78, there may be an easier pathway for a return towards the 2019 low established during the Yen flash crash in January at 118.62. Otherwise, if bulls are going to retake control, a return above the descending trendline from the October 2017 and March 2019 highs is required; that could come above the 23.6% retracement of the 2018 high/2019 low range at 122.20.

IG CLIENT SENTIMENT INDEX: EUR/JPY DAILY PRICE CHART (JANUARY 28, 2019 TO JULY 26, 2019)

EUR/JPY retail trader data shows 70.4% of traders are net-long with the ratio of traders long to short at 2.38 to 1. In fact, traders have remained net-long since Apr 25 when spot EUR/JPY traded near 125.662; price has moved 3.8% lower since then. The number of traders net-long is 8.0% higher than yesterday and 8.7% lower from last week, while the number of traders net-short is 8.1% lower than yesterday and 1.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests spot EUR/JPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURJPY-bearish contrarian trading bias.

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-- Written by Christopher Vecchio, CFA, Senior Currency Strategist &Rich Dvorak, Junior Analyst

Connect with @CVecchioFX and@RichDvorakFX on Twitter for real-time market insight