EUR/USD tries to snap its record losing streak: The Week Ahead – 06/10/2023

EUR/USD tries to snap its record losing streak: The Week Ahead 

EUR/USD is on track for a record 12th consecutive losing steak. But given its hesitancy to test 1.04 and the potential for a false break of the January low, perhaps we’re finally nearing an inflection point for the battered EUR/USD. 

Of course, to see this tide turn we’ll likely need to see a weaker US dollar. And that likely needs to see bond investors step up their game and suppressing worryingly high yields. And that means that for another week the performance of bond markets takes precedence over economic data, although next week’s US inflation report could exacerbate the bond rout if it comes in uncomfortably hot. We also have inflation data from China, along with key loan data and a trade balance report. 

• The week that was:
• The week ahead (calendar):
• The week ahead (key events and themes):

The week that was:

The week ahead (calendar):

Earnings This Week

Look at the corporate calendar and find out what stocks will be reporting results in Earnings This Week.

The week ahead (key events and themes):

• Global bond rout, USD rally
• US inflation, producer prices
• China inflation, trade balance, loan data
• UK data dump (GDP, industrial production, manufacturing production)
• US consumer sentiment

Global bond rout

This week I noticed a rise of alarms bells being rung across social media, from veteran traders who are not usually over sensational. And I’ll admit to it making me a tad worried. When I pulled up a 10-year bond price chart and noted a lack of support for the 10-year prices, I had to ask myself if bondcano really is just getting started. Either way, the plunge in bond prices and its drastic impact on rising yields remains a key driver for market sentiment. And if they pull back from their highs, it could provide breathing room for appetite for risk to make a return. 

Market to watch: Yields, EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones, VIX, AUD/JPY

US inflation, producer prices

Whilst the bond rout takes centre stage, next week’s inflation data is the next in line as it could have a direct impact on bonds (and therefore global assets). We saw the monthly gauge of CPI and core CPI rise in August, and if they continue to accelerate it could exacerbate the bond rout to send yields and the US dollar higher, to the detriment of risk appetite. It would likely take a particularly soft inflation report to restore appetite for risk, but right now I think battered investors would be happy with a pause from rising yields. 
Also note that producer prices are released for the US, which are a key inflationary input for consumer prices.

Market to watch: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

China inflation, trade data, investment, loans

A little scenario planning can go a long way, especially when it comes to trading. But if we are to find that consumer prices for the US and China are rising in tandem next week, it could have a huge knock-on effect for markets. And that is not particularly so far fetched given China’s producer prices have seemingly troughed and CPI rose 0.1% y/y after a since month of deflation. 
Loan data will also reveal if the pickup in loan demand is sustained, but failure to do so points to softer growth prospects. We’ll also keep an eye on trade data to see if there’s been a pickup in domestic and overseas demand.

Market to watch: USD/CNH, USD/JPY, S&P 500, Nasdaq 100, Dow Jones, VIX, AUD/JPY


 

EUR/USD weekly chart:

At the time of writing, EUR/USD is on track for its 12th consecutive bearish week. According to data from ICE (intercontinental Exchange), the previous record for losing weeks was 10 – so it set a record last week. If I look at the bond rout and rising yields, it is one of those macro moves that simply makes a mockery of traditional technical analysis and their ‘overbought’ or ‘oversold’ levels. But then I look at the EUR/USD weekly chart and seriously question if we’re at or near an inflection point for the US dollar. And if so, that also assumes bond yields are also near or at an inflection point. 

Unless today’s nonfarm payroll report is outrageously strong, EUR/USD might be able to close the week above the January low and deem the initial break as a ‘fakeout’. If it closes at or above current levels, EUR/USD would also have a bullish hammer week up its sleeve. And whilst that doesn’t guarantee we’ll see a sharp rebound from current levels, it should at least serve as a warning for EUR/USD bears, and excite EUR/USD bulls who want to quietly load up at these lows in hope of an eventual rally – which assumes a weaker US dollar and bond yields.  

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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