Eurozone economy contracts under mounting pressure

Euro zone business activity contracted last month, with both the services industry and factory output experiencing a decline. The ECB's monthly Consumer Expectations Survey, which revealed modest expectations for income growth, provided some relief to policymakers amidst their efforts to combat high inflation through interest rate hikes. The survey also indicated a decrease in uncertainty about inflation expectations for the next 12 months compared to previous months. However, consumers still expected inflation to remain at 2.5% three years from now, surpassing the ECB's 2% target.

Retail sales in the euro zone remained unchanged in May, as increased spending on non-food items offset declines in food and automotive fuel sales. Sluggish consumption was attributed to falling real incomes, increased expenditure on energy, credit, and mortgage repayments, and a cautious approach by households due to low economic growth.

Germany's potential economic recovery suffered a setback as industrial production unexpectedly fell in May compared to the previous month. This data underscored the challenges Germany faced in overcoming a recession, despite a slight increase in orders in May that had raised some optimism. The growth of Germany's services sector also slowed in June, reflecting a loss of momentum that was already observed in France, Italy, and Spain.

France experienced a decline in its services sector in June, raising concerns that the country's economy may have contracted in the second quarter. The survey revealed weak demand and cited reasons such as increased borrowing costs and inflation. While the French central bank expected the economy to avoid a recession this year and inflation pressures to ease, it predicted gradual growth in the next two years, with projections of 0.1% growth in the current quarter and 0.2% growth in the subsequent quarters.

The U.S. dollar faced pressure following lower-than-expected job growth, leading to reduced expectations for further rate hikes by the Federal Reserve. The U.S. economy added 209,000 jobs in the previous month, the smallest increase in 2-1/2 years, causing the dollar to decline.

Investors turned their focus to U.S. inflation data for June, as the Federal Reserve prepared for another rate hike. The consumer price index was expected to show an annual increase of 3.1% in June, the slowest since March 2021. The core CPI, which excludes volatile food and fuel prices, was projected to rise at an annual rate of 5%, moderating from 5.3% in May but still exceeding the Fed's 2% target. The June jobs report indicated tight labor market conditions despite the addition of the fewest jobs in two-and-a-half years.

Therefore, the EUR/USD trend could face downward pressure due to the Eurozone's economic challenges, weak consumer sentiment, and concerns about economic contraction in France. However, the trend may also be influenced by the performance of the U.S. dollar, which could weaken if inflation data falls short of expectations and the Fed adopts a more cautious approach to rate hikes.

Data for Technical Analysis (5H) CFD EUR/USD

Resistance : 1.0970, 1.0973, 1.0977

Support : 1.0962, 1.0959, 1.0955                  

5H Outlook

Source: Investing.com                     

Buy/Long 1 If the support at the price range 1.0957 - 1.0962 is touched, but the support at 1.0962 cannot be broken, the TP may be set around 1.0971 and the SL around 1.0953, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0970 - 1.0975, TP may be set around 1.0982 and SL around 1.0958, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0970 - 1.0975 is touched, but the resistance at 1.0970 cannot be broken, the TP may be set around 1.0960 and the SL around 1.0979, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0957 - 1.0962, TP may be set around 1.0949 and SL around 1.0975, or up to the risk appetite.       

Pivot Points Jul 10, 2023 02:29AM GMT

Sources: Investing 1, Investing 2