Euro Zone's Trade Shift, Bankruptcies Rise, and Economic Indicators Fluctuate

In June, the euro zone experienced a significant shift from a substantial trade deficit to a notable trade surplus compared to the same period a year earlier. This turnaround was driven by a sharp decrease in imports from both Russia and China, according to data released on Thursday by the European Union's statistics office, Eurostat. While exports saw a marginal 0.3% increase over the past 12 months, imports saw a steep decline of 17.7%.

In a separate economic update, the European Union faced a concerning increase in bankruptcy declarations during the second quarter of the current year. This rise was notably driven by the accommodation and food services sectors. According to Eurostat, the number of companies going out of business during the April-June period was 8% higher than the previous quarter, marking the sixth consecutive increase in this trend.

While various sectors saw an escalation in bankruptcy declarations, the accommodation and food services sector experienced the most significant impact with a 24% increase. Additionally, the transportation and storage sectors experienced a 15% increase in business closures, and education, health, and social activities saw a 10% increase. Interestingly, bankruptcy declarations surpassed pre-pandemic levels in most sectors except for industry and construction, which recorded declines of 12% and 3%, respectively, from the fourth quarter of 2019.

Turning to the euro zone's industrial sector, it demonstrated a rebound in June, contributing positively to overall growth. Despite this rebound, the euro zone's economy has largely stagnated over the past three quarters, primarily due to a manufacturing recession and rising costs for food and energy.

Despite these challenges, services and employment have provided pockets of strength. While indicators suggest ongoing stagnation in the coming quarters, the European Central Bank is expected to be cautious in further raising borrowing costs due to historically high interest rates. Despite the economic challenges, the labor market remains tight, with unemployment at all-time lows and employment seeing a slight uptick, particularly in Germany.

Currently, economists anticipate a modest expansion in the euro zone over the next few quarters, bolstered by a robust tourism season and sustained labor demand, especially in the services sector. Encouragingly, inflation is now trending downward, instilling policymakers with growing assurance that the rapid tightening measures are yielding positive results.

The United States also experienced economic fluctuations, as reflected by the dollar index hovering near a two-month high. Recent data showcased the resilience of the U.S. economy, with strong single-family home building and future construction permits, along with rebounding factory production.

In the central-eastern U.S. region, manufacturing activity rebounded in August, suggesting an end to a year-long period of contraction. Factory activity grew at its strongest pace since April 2022, driven by increased new orders and robust consumer demand. This resilience in spending and manufacturing activity could help the U.S. economy avoid a recession.

Despite a slowdown in job growth, a decrease in new claims for unemployment benefits indicated ongoing tightness in the labor market. This labor market strength supported the economy, as evidenced by solid retail sales and strong consumer desire. However, these positive signs also raised concerns that the Federal Reserve could implement additional interest rate hikes. Consequently, it's probable that the euro will continue to be weaker than the US dollar, influenced by the susceptibility of several larger countries in the bloc, along with persistent divergences in returns. Although there could be occasional recoveries based on reported economic data.

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

Resistance : 1.0894, 1.0900, 1.0910

Support : 1.0872, 1.0866, 1.0856                    

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.0862 - 1.0872 is touched, but the support at 1.0872 cannot be broken, the TP may be set around 1.0901 and the SL around 1.0857, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0894 - 1.0904, TP may be set around 1.0920 and SL around 1.0867, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0894 - 1.0904 is touched, but the resistance at 1.0894 cannot be broken, the TP may be set around 1.0874 and the SL around 1.0909, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0862 - 1.0872, TP may be set around 1.0850 and SL around 1.0899, or up to the risk appetite.       

Pivot Points Aug 18, 2023 02:31AM GMT

Sources: Investing 1, Investing 2