EURUSD: pullback to 1.1842 expected

The euro advanced 0.17% to 1.1863 on Monday, September 14. The price action climbed to 1.1888 on improved risk appetite in global markets amid news that AstraZeneca (AZN) and the University of Oxford have resumed testing for their experimental Covid-19 vaccine. By the close, buyers retreated to 1.1859.

The British pound corrected to 1.2919. EURGBP gains were modest as investors awaited a vote in the UK parliament on Prime Minister Boris Johnson’s new Brexit proposals, which the European Union has harshly criticized.

Todays macro agenda (GMT+3)

 12:00 Germany and Eurozone: ZEW economic sentiment index (September)

15:30 Canada: manufacturing sales (July); US: NY empire state manufacturing index (September) and import prices (August)

16:15 US: industrial production and manufacturing production (August)

Current outlook

The price action tracked our baseline scenario throughout the session. It failed to reach the balance line as a slew of positive news came out of China during Asian trading, thus increasing the demand for risky assets. Industrial production and retail sales outpaced market expectations.

Industrial production in China rose 5.6% YoY in August compared to the median forecast of 5.1% YoY and the previous reading of 4.8% YoY. Industrial production in January-August increased 0.4% YoY (exceeding the forecast of +0.2% YoY, while the previous reading was -0.4% YoY).

In addition, retail sales increased by 0.5% YoY (vs. flat performance expected, while the previous reading was -1.1% YoY). Retail sales in January-August declined by 8.6% YoY, falling short of the projected -8.8%, and the previous reading stood at -9.9% YoY.

Furthermore, China extended tariff exemption for some goods imported from the US, which were set to expire on September 16.

In other news, China's top biosafety expert said that phase 3 clinical trials were proceeding smoothly and the vaccine could be ready for the general public in November or December.

As regards the UK vote, members of the House of Commons of the British Parliament on Monday evening passed the second reading of the Internal Market Bill, which has triggered a backlash in the European Union. The controversial bill was approved by a majority of 340 votes to 263.

The EU says that unless the bill is struck down there will be no trade deal for the UK when it withdraws from the customs union and single market at the end of 2020.

Market participants are also getting ready for the Fed's interest rate decision and a press conference to be held by Chairman Jerome Powell on Wednesday. The Fed is widely expected to leave rates and quantitative easing (QE) unchanged at its September meeting.

In line with our forecast for today, we think the key pair will test the 1.1905 mark and then fall back to 1.1842 (45th degree of the Gann angle).

EURUSD-15-09

 

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