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Euro attempts to rebound after decline in Asian trading

The EURUSD pair rose 0.55% to 1.1795 on Friday, August 13. The US currency moved lower against all major currencies after the University of Michigan Consumer Sentiment Index came out.

The UoM reported that consumer sentiment fell to its lowest level since December 2011, at 70.2 in August. The Current Conditions Index fell to 77.9 from 84.5 in June. The survey participants cited uncertain outlooks for personal finance, inflation and employment.

The 10-year US Treasuries yield fell 8 bps to 1.287%, putting additional pressure on the dollar.

Today’s macro agenda (GMT 3)

  • 13:00 Germany: Bundesbank monthly report
  • 15:30 US: NY Empire state manufacturing index (August); Canada: manufacturing sales and wholesale sales (June);
  • 23:00 US: foreign bond investment, overall net capital flows (June)

By the time of writing, virtually all major currencies were trading in the red. The biggest losses were seen by the Australian dollar (-0.46%), followed by the Canadian dollar (-0.20%) and the New Zealand dollar (-0.16%). Only the yen was trading in positive territory ( 0.19%).

Risk-sensitive assets came under pressure after the release of disappointing macro data out of China. Growth in industrial production and retail sales in the country slowed sharply and fell short of expectations in July. The economy and business have been hampered by new COVID-19 outbreaks and floods.

The unemployment rate in July rose to 5.1% against 5.0% earlier (vs. 5.0% projected). Retail sales in July rose by 8.5% compared to 12.1% a month earlier (vs. 10.9% expected). Industrial production in July reached 6.4%, down from 8.3% earlier (vs. the 7.9% median consensus).

In addition to Chinese macro data, additional pressure on the Australian dollar came from an announcement by the Prime Minister that the Australian state of Victoria will be extending the Melbourne lockdown for another two weeks. Also, on Sunday, New South Wales recorded a high infection rate of 415.

In Australia, military personnel set up roadblocks. Citizens were forbidden to leave NSW without a reasonable excuse. The authorities have raised fines for violating isolation orders.

Meanwhile, in the US, concern is growing that hospital admissions for people aged 30–39 have jumped to a record level. A disastrous Covid situation is also playing out in Japan. The number of new daily infections reached the highest number on record on Sunday at 20,140.

During Asian trading, the euro fell to 1.1787. After Friday's rally to 1.1805, the EURUSD pair looks poised for continued upside. It would be nice to see a leg up to the 1.18 handle, followed by a correction. The aussie dollar is pulling down major currencies across the board and the pressure could gain momentum with the opening of UK trading. If and when the hourly candlestick closes below 1.1785, the risk of the pair falling to 1.1765 will increase. Uncertainty is added by minutes from the Fed’s latest meeting, which are due out on Wednesday.

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