Forex Signals US Session Brief, July 10 – Sideways Price Action in Forex As We Await Powell’s Testimony, FOMC Minutes and US Inflation

In the last two days, the economic data has been really light and markets have been quiet compared to the previous weeks. Although, we will have quite a few important economic reports and events taking place in the second half of the week. The European session started today with the UK GDP, manufacturing and industrial reports being released earlier on. The GDP had been contracting in Britain during March and April, so the chances for another decline in May were high, despite expectations for a 0.3% expansion that month. The manufacturing and industrial reports released last month also showed a major decline of April, but they were expected to increase in may as well. The numbers coming out of the UK were positive today, which sent the GBP around 30 pips higher, but as I highlighted in one of the updates today, this jump on the positive figures would be a good opportunity to sell the GBP and that’s what we did. That trade closed in profit already.

Later on today, FED’s chairman Jerome Powell will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee, in Washington DC which will last today and tomorrow. He did speak yesterday at an event hosted by the Federal Reserve Bank of Boston but he didn’t touch on the monetary policy. Today he will be forced to speak out his plans for the near future. Later in the evening, the FOMC minutes from the FED’s last meeting will be released and they will shed a bit more light on the dovish remarks we heard a few weeks back. But before anything, the Bank of Canada will have its meeting and decide on interest rates, so markets are waiting for all these important events to take place, hence the slow price action today.

The European Session

• Italian Retail Sales – Retail sales have been negative in Italy towards the end of last year as the economy fell in recession. But they turned positive in the first two months of this year. In March, retail sales turned negative again and fell by 0.3% while in April they fell flat at 0.0%, as the report released last month showed. In May, retail sales were expected to have increased by 0.2%, but they missed expectations falling by 0.3% instead, so the tough times continue for the Italian economy.
• French and Italian Industrial Production – The industrial production declined at the end of last year across the Eurozone as the global economy weakened, but it turned positive in Q1 after the sentiment improved and we saw a small rebound in the economy. But, the economic weakness returned in Q2 and in March we saw a 0.9% decline in industrial production in France, while in Italy industrial production decline in March and in April. Although, industrial production was expected to increase by 0.1% in Italy in May and by 0.3% in France. he actual numbers beat expectations, coming at 0.9% for Italy and 2.2% for France, which is a positive sign. Perhaps the Eurozone economy will make a U-turn now?

• UK GDP – The UK economy has been contracting  during March and April which sets the path for a contraction on the GDP during Q2. Today’s report was expected to show a 0.3% increase in May, but considering the previous misses, the odds for another negative number were high. Although, The British economy expanded by 0.3% indeed in May, as expected. GDP 3m/3m came at +0.3% against +0.1% expected. The headline number came as expected and that’s largely attributed to a recovery in car production, which is up by a record 24% m/m following a substantial drop in the month of April. As estimated now after this report, it would take a +0.8% increase in the GDP for June to see UK Q2 GDP turn flat, so this just confirms that we’re almost certainly going to see the economy shrink for the first time in seven years in the second quarter.
• UK Industrial and Manufacturing Production – The UK economy has turned the tail in Q2 of this year after an impressive Q1. In April, the industrial [production contracted by 2.7% which was revised lower today to -2.9%, while manufacturing production contracted even more, by 3.9%, which was also was revised lower to -4.2% today. Manufacturing production was expected to turn positive in May and increase by 2.2%, but it missed expectations coming at 1.4% while industrial production was expected to show a 1.6% increase,but came at 1.4% instead, which is still encouraging after  the terrible numbers we saw for April.
• • Italy 2019 GDP growth 0.1% (unchanged)
  • Italy 2020 GDP growth 0.7% (unchanged)European Commission Cuts Economic Projections – The European Commission releases its latest economic forecasts of the region. It warned of rising downside risks as it cut euro area economic outlook. Here are the projections:
    • Eurozone 2019 GDP growth 1.2% (unchanged)
    • Eurozone 2020 GDP growth 1.4% (previously 1.5%)
    • Euroozne 2019 inflation seen at 1.3% (previously 1.4%)
    • Germany 2019 GDP growth 0.5% (unchanged)
    • Germany 2020 GDP growth 1.4% (previously 1.5%)
    • France 2019 GDP growth 1.3% (unchanged)
    • France 2020 GDP growth 1.4% (previously 1.5%)

The US Session

• Jerome Powell Testifies – The FED chairman Powell will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee, in Washington DC in about an hour. But the statement has been released already and it seems dovish. here are the main comments form the statement: Uncertainties since June FOMC continued to dim outlook, it appears training uncertainties and concerns about global economy continue to weigh on US economic outlook. The FED will act as appropriate to sustain US economic growth. Baseline outlook for US economic growth remained solid, labor markets to stay strong and inflation to move back up to central bank’s 2% target. There is a risk weak inflation will be even more persistent than Fed currently anticipates. US consumer spending growth was weak in first-quarter data shows it has bounced back and is running at a solid pace. US economy’s long-term challenges include high and rising federal debt and relative stagnation of middle and lower incomes. Housing manufacturing look to have dipped again in 2Q, the economy performed reasonably well over 1H, jobs healthy. Many of June FOMC is a soft case for somewhat easier policy. Investment seems to have slowed notably on trade fears and inflation pressures remain muted.

• BOC Meeting – The meeting from the Bank of Canada will take place in about an hour as well. Tjhey are expected to keep interest rates unchanged at 1.75% so the interest will be on the BOC statement and monetary policy report, as well as on the press conference which will follow 15 minutes later.
• The UK Ambassador to the US Will Be Replaced – Some leaked reports showed that the UK Ambassador in the US doesn’t like Donald Trump much. but he will be replaced after the complaints form the US it seems. Theresa May was speaking a while ago saying that a new ambassador to the US will be appointed in due course.  UK’s US ambassador Kim Darroch has resigned on the back of the leaked memos criticizing the US President. The PM is confident a strong relationship with the US will continue in the future.

Trades in Sight

Bullish EUR/CHF

• The trend has turned bullish in the last few weeks
• The pullback lower is complete
• The lower trend line of he channel is holding

The price is bouncing off the lower line of the channel

EUR/CHF has been on a bearish trend in the previous two months as the sentiment in financial markets turned negative on an escalating trade war and weakening global economy. but the trend shifted to bullish in the last few weeks and it has formed an ascending channel which it has respected pretty well. This week this pair has been bearish, but the lower line of the channel has been holding in the last few session and the price is oversold now, so we decided to go long from this line and it seems like the buyers are already returning.

In Conclusion

The meeting of the Bank of Canada will start soon, but Powell’s testimony will be more important. The statement has already been released and the comment there seem to lean on the bearish side. The USD has lost around 25 pips on those comments but the price has stalled now as we await for Powell to come out.