Summary:

• German CPI Y/Y: 2.2% vs 1.9% exp
• ADP employment change: 178k vs 191k (prior revised down to 163k)
• EURUSD forming possible reversal signal at key support 

There’s been a few data releases in the past hour that taken together are clearly positive for the EURUSD, and given that the pair is not far from a potentially key support zone around 1.15, then any bullish reversal signs could prove pivotal. First off, lets start in Europe where the latest German inflation data showed a larger than expected increase, largely due to the surging oil price and also a weaker Euro. Looking across the Euro area there has been a marked increase in price pressures of late, and with some timely comments yesterday from ECB members about scaling back stimulus, the bank may look to tighten faster than is currently expected. 

 CPI readings across Europe have increase pretty sharply of late due to higher oil prices and also a weaker Euro. Source: XTB Macrobond

Turning our attention to the USD side of the pair and there has been two potentially negative data points for the buck from the US. First, off the ADP employment change for May came below the expected 191k at 178k and the prior reading was also subject to a sizable downwards revision (163k vs 204k prior). The reading by itself shouldn’t cause too many alarms, but it is towards the lower end of its recent range and given the fairly strong correlation between the ADP and NFP (due out Friday at 1:30) then we could get some softness in the most widely followed labour market gauge in the US. 

 The ADP reading disappointed and has fallen towards the lower end of its recent range. Taken together with the negative revision to the prior this could be seen suggest some possible weakness in Friday’s NFP. Source: xStation

Not long after the ADP number the preliminary US GDP for Q1 was released, with the reading marking the second of three prints. The previous print of 2.3% was revised lower to 2.2%, which similar to the ADP is still pretty good but at the same time, a bit worse than expected. 

 US GDP for the 1st quarter was revised slightly lower to 2.2% with a notable drop-off seen in personal consumption. Source: XTB Macrobond

So what, does this all mean for the markets? A key FX pair that is impacted by both the German and US data is the EURUSD, and given the releases, it has unsurprisingly hit its highest level of the day in the past hour. The world’s favourite cross dropped to its lowest level of since last July yesterday with the rising political tensions in Italy weighing on the market. Price moved back near the 1.15 handle which is where it made the decisive break higher last summer, and this is an obvious place to look for what was resistance to now offer some support. 

 

 The EURUSD has revisited a potentially key level around 1.15 – the region from where it broke higher last summer. Source: xStation

Looking at a daily chart we can note a possible bullish engulfing candle forming near this longer term support and if the market can close the day’s trade above 1.1624 then the signal will be confirmed. 

 A bullish engulfing formation looks to be developing on D1, and a daily close above 1.1624 would confirm the possible reversal signal. Source: xStation