- EUR/USD has been falling toward the lowest levels in two years.
- Trade headlines and euro-zone data dominate trading today.
- Friday's four-hour chart is showing oversold conditions for EUR/USD.
Hard data has been outweighing hardline views from the European Central Bank – and this sends EUR/USD close to the cliff.
Germany has reported a plunge of 2.2% in Retail Sales in July – more than double the 1% slide – and on top of a downward revision for June's data. Consumption has been keeping the German economy up amid a manufacturing slump – but this motor is stuttering as well. So far, the government in Berlin has been unkeen to intervene and stimulate the economy.
See New German government needed to spend and lift the euro
The data outweigh hawkish comments from Klaas Knot, the Dutch member of the ECB. Knot pushed back against calls on the bank to resume its bond-buying scheme and said that markets may have gone too far in expectations for stimulus. The Dutchman joined his German counterpart, Jens Weidmann – who also rejected "acting for the sake of acting." Another German member, Sabine Lautenschlaeger, echoed her colleagues' words by saying it is much too early for a huge stimulus package."
However, ECB President Mario Draghi and several other colleagues want looser monetary policy – and may get their way.
Trade calm for now
Currency markets have not only ignored Knot's comments but also the optimism that stock markets express over the US-Sino trade war. On Thursday, President Donald Trump touted talks between the world's largest economies – but neither side has confirmed they actually took place.
China has called for calm and focusing on removing tariffs rather than enacting new ones. Beijing has hinted that it would refrain from immediate retaliation to new US levies due out on Sunday, September 1.
However, barring any surprise, Washington is set to slap new duties and China will – even if not immediately – respond with counter-measures that they had already prepared. News from both countries and especially tweets from Trump may rock markets later today.
EUR/USD has been under pressure also due to this calm – the rise in US yields has propped up the dollar.
A busy end to the month
The economic calendar features additional market-moving events. Preliminary Euro-zone inflation figures stand out. Both headline Consumer Price Index (CPI) and Core CPI are projected to stand at 1% year on year. However, initial CPI figures from Germany have missed expectations and this may push the all-European numbers lower.
See EU Inflation Preview: ECB’s aggressive stimulus coming and nothing can change that
Inflation numbers also stand out in the US with the Federal Reserve's preferred gauge – Core Personal Consumption Expenditure for July. Despite the acceleration of the parallel Core CPI measure for August from 2.1% to 2.2%, Core PCE is projected to remain unchanged at 1.6%.
See US PCE Price Index preview: A brief history of inflation targets
It is essential to note that today is the last trading day of the month and some money managers may rush to adjust their portfolios, triggering high volatility.
Looking into the weekend, there is another significant event apart from the trade tariffs – the German states of Saxony and Brandenburg hold regional elections. The far-right AfD is expected to make gains, eroding support from both the CDU and the SPD – the coalition partners at the national level. – weakening the central government in the continent's largest economy.
EUR/USD Technical Analysis
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EUR/USD has been under pressure since losing the uptrend support line and it is suffering from downside momentum on the four-hour chart. On the other hand, the Relative Strength Index (RSI) is flirting with 30 – indicating oversold conditions – and implying a temporary bounce.
The 2019 low of 1.1027 is critical support. It is followed by the psychologically important number of 1.1000, and then by 1.0960, which was a support line in 2017. Further down, 1.0900 and 1.0810 are noteworthy.
Resistance awaits at last week's low of 1.1050. It is followed by 1.1090, which was a swing low on Thursday, and by 1.1115, which capped EUR/USD this week and also in the previous one.
More EUR/USD has just one support line left before 1.1000 – Confluence Detector
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