Friday’s trade saw EUR/USD within the range of 1.0924-1.0997. The pair closed at 1.0984, adding 0.02% on a daily basis and extending gains from Thursday. The cross appreciated 1.42% on a weekly basis, following a 2.99% slump in the preceding week. The weekly gain has been the steepest one since the week, which began on May 10th, when EUR/USD climbed 2.22%.
At 8:54 GMT today EUR/USD was up 0.87% for the day to trade at 1.1080. The pair broke the daily R1, R2 and R3 levels and touched a daily high at 1.1111 at 8:01 GMT. It has been the highest level since July 13th, when a high of 1.1198 was reached.
Fundamentals
Euro Area
German IFO Index of Business Climate above expectations
The euro advanced to a two-week high against the US dollar, after the gauge of business climate in Germany was reported at a value of 108.0 in July, which exceeded the median forecast by experts, pointing to a reading of 107.2.
The sub-index of expectations improved to 102.4 in July from 102.1 in June, while market expectations pointed to a reading of 101.8.
The sub-index of current assessment rose to 113.9 in July from 113.1 in June, outstripping the median forecast of 113.0.
United States
Durable Goods Orders
Durable goods orders in the United States probably increased 2.5% in June compared to a month ago, according to the median forecast by experts. In May new orders for manufactured durable goods declined at a pace of 1.8%, as transportation orders decreased the most, by 6.4% to reach USD 71.7 billion.
Shipments of manufactured durable goods shrank 0.1% to USD 239.9 billion in May, following a 0.2% drop in April. Inventories of manufactured durable goods fell 0.2% to USD 400.6 billion in May, following 23 consecutive months of increases. Unfilled orders for manufactured durable goods declined 0.5% to USD 1,195.5 billion in May, after a 0.2% drop in April, according to data by the US Census Bureau.
Durable goods orders, as an indicator, gauge the strength of US manufacturing sector and represent a major portion of the nation’s factory orders. This is a closely watched report on manufacturing activity, because durable goods are the first type of goods to be affected by an economic downturn or upturn.
Durable goods are designed to last three or more years and encompass aircraft, automobiles and buses, cranes, machine parts, appliances etc. More than 85 industries are represented in the sample, which covers the entire United States. The logic behind this indicator is that consumers need to be very optimistic in order to buy an automobile in comparison with, for example, first necessities such as food or clothing. Therefore, durable goods are among the first goods, which a consumer may abstain from purchasing, in case overall economic activity begins to contract. The same is valid for company purchases. During a recession, an airliner is less likely to purchase new aircraft and as factory output contracts, it is less likely to purchase new machines.
Durable goods orders, which exclude transportation, probably rose 0.3% in June. In April and May orders were up 0.5%, following six consecutive months of declines. Large ticket orders, such as automobiles for civil use or aircraft, are not present in the calculation, as their value may be in a wide range. This way the index provides a more reliable information in regard to orders for durable goods.
In case orders increased at a faster-than-projected pace, this would certainly have a bullish effect on the greenback. The US Census Bureau is scheduled to release the official data at 12:30 GMT.
Correlation with other Majors
Taking into account the week ended on July 26th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:
EUR/USD to NZD/USD (0.4489, or moderate)
EUR/USD to USD/CAD (0.4369, or moderate)
EUR/USD to AUD/USD (-0.4048, or moderate)
EUR/USD to GBP/USD (-0.4887, or moderate)
EUR/USD to USD/CHF (-0.5264, or strong)
EUR/USD to USD/JPY (-0.9506, or very strong)
1. During the examined period EUR/USD moved almost equally in the opposite direction compared to USD/JPY.
2. EUR/USD moved strongly in the opposite direction compared to USD/CHF during the past week.
3. EUR/USD moved to a moderate extent in one and the same direction with NZD/USD and USD/CAD, while moving to a moderate extent in the opposite direction in comparison with AUD/USD and GBP/USD.
Bond Yield Spread
The yield on German 2-year government bonds went as high as -0.219% on July 24th and closed at the same level to gain 0.003 percentage point on a daily basis, while marking the first gain in the past three trading days.
The yield on US 2-year government bonds climbed as high as 0.707% on July 24th, after which it fell to 0.682% at the close to lose 1.6 basis points (0.016 percentage point) for the day, while marking a second consecutive day of decrease.
The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, shrank to 0.901% on July 24th from 0.928% during the prior day. The latter has been the lowest spread since July 21st, when the difference was 0.900%.
Meanwhile, the yield on German 10-year government bonds soared as high as 0.736% on July 24th, after which it slid to 0.700% at the close to lose 4.6 basis points (0.046 percentage point) compared to July 23rd, while marking a third straight day of decrease.
The yield on US 10-year government bonds climbed as high as 2.286% on July 24th, after which it slipped to 2.262% at the close to lose 0.007 percentage point on a daily basis, while marking a fourth consecutive day of decline.
The spread between 10-year US and 10-year German bond yields expanded to 1.562% on July 24th from 1.533% during the prior day. The July 24th yield difference has been the highest one since July 22nd, when the spread was 1.580%.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.0968. In case EUR/USD manages to breach the first resistance level at 1.1013, it will probably continue up to test 1.1041. In case the second key resistance is broken, the pair will probably attempt to advance to 1.1086.
If EUR/USD manages to breach the first key support at 1.0940, it will probably continue to slide and test 1.0895. With this second key support broken, the movement to the downside will probably continue to 1.0867.
The mid-Pivot levels for today are as follows: M1 – 1.0881, M2 – 1.0918, M3 – 1.0954, M4 – 1.0991, M5 – 1.1027, M6 – 1.1064.
In weekly terms, the central pivot point is at 1.0937. The three key resistance levels are as follows: R1 – 1.1067, R2 – 1.1149, R3 – 1.1279. The three key support levels are: S1 – 1.0855, S2 – 1.0725, S3 – 1.0643.
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