The euro had a slightly better run in the previous week but still found itself behind most of the pack. The Swiss franc, on the other hand, took better advantage of risk-off flows.
Leading indicators (starting Aug. 6)
In the absence of any top-tier economic events or releases from the region this week, taking a look at the medium-tier leading indicators could serve as good clues for euro direction.
To start off, we’ve got the German factory orders report and the bloc’s Sentix investor confidence index. The former could show a 0.3% dip while the latter might improve from 12.1 to 12.8, signaling a better outlook for the economy.
On Tuesday’s London session, we’ve got Germany’s industrial production and trade balance, followed by the French trade balance report. France will also print its own industrial production and its non-farm payrolls figures on Friday.
Last Week’s Price Review
The euro is the third worst-performing currency of the week (as of 1 pm GMT), which is an improvement compared to last week’s performance when the euro found itself at the very bottom of the forex heap.
The euro actually started the week on a strong footing, as you can see in the overlay of EUR pairs above.
There were no apparent catalysts for the euro’s rise, but as noted in Monday’s London session recap, some market analysts were attributing the euro’s rise to bargain buying since the euro’s slide was supposedly overdone.
Most euro pairs continued to tilt to the upside on Tuesday and even encountered fresh buyers during the London session, thanks to a bunch of mostly positive Euro Zone economic reports, which showed that the Euro Zone’s inflation, GDP growth, and labor market are evolving in-line with (or better than) the ECB’s targets, as laid out in the June Eurosystem/ECB Staff Macroeconomic Projections.
Sadly (for euro bulls), the euro’s bullish run finally stuttered to a stop before devolving into a rout during Tuesday’s U.S. session.
There was no apparent reason why, but it’s likely that traders were flocking to the Greenback at the euro’s expense since the Greenback began to rise after Bloomberg released a report that claimed that “Representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations as they look for ways to reengage in negotiations.”
At any rate, follow-through selling was only limited and the euro eventually found support and traded sideways on most pairs.
However, another wave of sellers attacked the euro during Wednesday’s U.S. session. There was no clear trigger for the selling pressure, but some market analysts pointed to the Euro Zone’s poor PMI reports, as well as the Greenback strength because of the escalating trade tensions due to rumors (and confirmation) that Trump wants to slap a 25% tariff on $200 billion worth of Chinese goods, more than the 10% originally proposed.
The latter makes sense and is in keeping with the euro’s vulnerability to Greenback strength. However, I’m not so sure about the latter since the euro barely reacted when the PMI reports were released, as marked on the overlay of EUR pairs. Also, the PMI reports were released long before the euro started sliding broadly lower.
In any case, follow-through selling was once again limited and the euro found support before long.
After that, the euro’s price action began to diverge since the euro started winning out against the Kiwi, the Aussie, and the pound while losing out against everything else.
However, sellers attacked (again) during Thursday’s U.S. session (again). There were no direct catalysts (again), but market analysts were quick to blame the euro’s weakness on the Greenback’s strength (again).
Follow-through selling was limited (again), however, and the euro started trading sideways (again) before becoming more mixed come Friday.
The Swiss Franc
The euro may be having a rough time this week, but the same can’t be said for the Swissy since the Swissy is the second-strongest currency of the week (as of 1 pm GMT). And if the Swissy can maintain its ranking, then it can soon boast its third week of net wins.
Looking at the sample pairs below, we can see that EUR and CHF pairs still have roughly similar price action.
However, we can also see that the Swissy got a bigger boost on Monday, likely because of the risk-off vibes at the time.
Moreover, we can see that the Swissy didn’t get as much selling pressure whenever sellers attacked the euro during the U.S. session. In fact, the Swissy is turning in a much better performance than the euro because the Swissy actually climbed on most pairs on Thursday.
And that implies that the Swissy wasn’t as vulnerable to Greenback strength as the euro. Although it’s also very likely that the Swissy’s weakness was cushioned (or offset completely) by safe-haven demand, given the prevalence of risk aversion on Wednesday and Thursday.