EUR/USD higher despite weak German GDP data

EUR/USD

• Euro zone's GDP growth was flat in the second quarter dragged down by shrinking growth in Germany and stagnant France. The market consensus assumed growth by 0.1% qoq after a rise by 0.2% qoq in the first quarter. When compared with the same period last year the euro zone's GDP grew by 0.7%, as expected, after a 0.9% in the January-March period. The third largest euro zone's economy, Italy, fell back into a technical recession in the second quarter. In Spain growth accelerated to 0.6% qoq, while the Netherlands bounced back to a quarterly growth of 0.5% after a 0.4% fall in the first three months of the year.
• We have not known the structure of GDP growth. However, the commentary from the German statistics office and the French breakdown point to weaker investment and exports as the reasons for the slowdown.
• The data show that the euro-zone economy remains too weak to eliminate the dangers of deflation. The worse-than-expected reading is also a warning ahead of the incoming quarter when European Union will feel hard impacts of sanction against Russia imposed in July.
• Eurostat confirmed euro zone inflation fell in July to 0.4% yoy, the weakest annual rise since October 2009 when prices fell by 0.1% yoy. Annual core inflation (excluding energy, food, tobacco and alcohol prices) stood unchanged at 0.8% yoy, for the second month in a row.
• The EUR/USD fell to a day's low of 1.3348 after the German data, close to the low of 1.3333 hit earlier in the month. It slightly recovered afterwards. We see that sentiment towards the EUR/USD remains bearish. On the other hand, the support in the range of 1.3330/40 is very strong and the rate needs to break below 1.3330 to retain downward momentum. Comments from the Fed's doves indicate there is a rising risk of a downturn caused by raising rates too soon. Such a rhetoric does not support the USD. In our opinion no positions are justified from the risk/reward perspective.

Significant technical levels:

Resistance: 1.3416 (high Aug 13), 1.3424 (21-dma), 1.3433 (high Aug 7)

Support: 1.3342 (low Aug 13), 1.3336 (low Aug 12), 1.3333 (low Aug 6)

EUR/GBP

• The EUR/GBP has overcome a few resistance levels after the Bank of England surprised investors on Wednesday by signaling it was in no hurry to raise interest rates. We are still long the EUR/GBP but we have moved our stop-loss level to 0.7995 to save our profit.

Significant technical levels:

Resistance: 0.8027 (high Jun 30), 0.8031 (high Jun 26), 0.8063 (high Jun 12)

Support: 0.8001 (session low Aug 14), 0.7981 (hourly low Aug 14), 0.7968 (10-dma)

AUD/USD

• The AUD/USD moved above our stop-loss level but we have taken a small profit on our short position at 0.9330. We will be looking to short again on the AUD/USD on higher levels. We still see potential for even breaking below May lows near 0.9200.

Significant technical levels:

Resistance: 0.9358 (high Aug 7), 0.9376 (high Aug 6), 0.9390 (high Jul 30)

Support: 0.9285 (session low Aug 14), 0.9245 (low Aug 12), 0.9236 (low Aug 8)

Growth Aces' current trading positions:

EUR/JPY: short at 136.70, target 135.50, stop-loss 137.25

EUR/GBP: long at 0.7950, target 0.8045, stop-loss 0.7995 (we have moved stop-loss from 0.7905 previously)

USD/CAD: long at 1.0905, target 1.1070, stop-loss 1.0840

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Growth Aces