GDP and PMIs Figures Show Economic Fragility

1 August, 2016

The Eurozone GDP QoQ rose by 0.3% in the second quarter, only half comparing to the figure of 0.6% in the first quarter. Eurozone GDP YoY was 1.6%, more than the expectation of 1.5%, yet still below the 1.7% seen in Q1. This can be associated with the 0% GDP growth in Q2 of France ( the second largest economy in the EU), compared to 0.7% in Q1. The seasonally-adjusted unemployment rate remained unchanged at 10.1%, the lowest number yet since July 2011. The recent data released by Eurostat show that Euro area’s annual inflation is estimated to be 0.2% in July, double the figure of 0.1% in June, which is the sixth consecutive month improvement, suggesting a moderate economic recovery and a gradual move away from deflation.

This morning a series of Eurozone PMIs were released, including the Spanish, the Italian, the French, the German, the UK and the Eurozone Manufacturing PMIs. The Spanish PMI was 51.0, below the expectation of 51.6 and the previous figure of 52.2. The Italian PMI was 51.2, below the expectation of 52.0 and the previous figure of 53.5. The French PMI was 48.6 in line with the expectation and the previous figure. The UK Manufacturing PMI fell to 48.2 from the previous figure of 49.1.

The best performer was the German PMI was 53.8, slightly better than the expectation and previous figure of 53.7. The Eurozone Manufacturing PMI was 52.0, better than the expectation and previous figure of 51.9, indicating a modest-paced recovery in the overall economic condition of the Eurozone. However still subject to fragility.

On the EURUSD 4 hourly chart, the price has broken out the upside uptrend line resistance at 1.114 with a long bullish candle last Friday as the dollar weakened, then held above the newly formed support level and all EMAs. The price has been moving along the Bollinger Band upper band since 27th July, indicating that the bullish trend is unchanged.

Yet the current price is at the 50% post referendum Fibonacci retracement level, also below the significant resistance at 1.12, implying selling pressure. In addition, the RSI indicator is above 70, and the KD indicator shows a divergence, suggesting a corrective pullback.

Upside resistances at 1.12 followed by 61.8% Fibonacci retracement at 1.123.

Downside supports at 1.113 followed by daily time frame 8 EMA at 1.1088, 20 EMA at 1.1083 and 61.8% Fibonacci retracement at 1.1108.

This morning DAX opened above the major resistance at 10370, reaching the heist level since April 2016.

Yet the current price is at the downtrend line resistance since April 2015. In addition, the daily time frame KD indicator is above 80 and shows a divergence from the price. The bullish trend is unchanged, yet be aware of a corrective pullback.

Downside supports at 10370 followed by the pre-referendum high at 10348 and 10260.

Upside resistance at 10445 the followed by the high in April at 10485.


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