EUR/USD Eyes a Return to Parity on Strong Q2 Eurozone Wage Growth

It was a quieter start to the day for the EUR/USD. Finalized consumer inflation figures for France and wholesale inflation figures from Germany were out ahead of trade and wage growth figures for the Eurozone.

On the inflation front, the numbers were EUR negative. German wholesale inflationary pressures softened, with the annual rate of wholesale inflation easing from 19.5% to 18.9%.

In August, the French annual inflation rate softened from 6.1% to 5.9% versus a prelim 5.8%.

However, Eurozone trade data and wages were of more influence. In July, the Eurozone’s trade deficit widened from €24.6 billion to €34.08 billion. Economists forecast a widening to €26.2 billion.

According to Eurostat,

• Euro area exports increased 13.3% to €235.5 billion compared with July 2021.
• Imports from the rest of the world surged by 44.0% to €269.5 billion compared with July 2021.
• In July 2021, the Euro area had a trade surplus of €20.7 billion.
• Intra-euro area trade rose to €224.8 billion in July, up 24.0% compared with July 2021.

By member state,

• Malta (-1.2%) and Ireland (-1.1%) were the only member states to register a fall in extra-EU exports.
• By contrast, Greece (+56.2%) and Slovenia (+57.3%) registered the largest increases.

However, Labor costs and wage growth showed resilience, with hourly labor costs rising by 4.0% (Y/Y) in Q2 versus 4.2% in Q1. Wages grew by 4.1% (Y/Y) in Q2, up from 3.7% in Q1.

On the monetary policy front, ECB member chatter will draw interest. ECB members Luis de Guindos and Elizabeth McCaul will deliver speeches today.

For the Pound, it is a quiet session. There are no major UK economic indicators to consider.

There are also no scheduled Monetary Policy Committee member speeches to provide direction.

EUR/USD Price Action

At the time of writing, the EUR was up $0.12% to $0.99920.

A mixed morning saw the EUR fall to a low of $0.99557 before rising to a high of $0.99954.

Technical Indicators

The EUR/USD needs to avoid the $0.9986 pivot to target the First Major Resistance Level (R1) at $1.0017 and the Wednesday high of $1.00236.

Hawkish ECB member chatter would support a return to $1.00. However, barring weak US economic indicators, the EUR/USD will likely fall short of $1.0100. The Second Major Resistance Level (R2) at $1.0055 should cap the upside. The Third Major Resistance Level (R3) sits at $1.0123.

A fall through the pivot would see the EUR/USD test the First Major Support Level (S1) at $0.9949.

However, barring a market flight to safety, the EUR/USD pair should avoid sub-$0.99. The Second Major Support Level (S2) at $0.9918 should limit the downside. The Third Major Support Level (S3) sits at $0.9849.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $1.0147. The 50-day EMA pulled back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

A EUR/USD move through the 50-day EMA ($1.00147), R1 ($1.0017), and the 100-day EMA ($1.00232) would support a run at R2 (1.0055). The 200-day EMA sits at ($1.00746). However, failure to move through the 50-day EMA would leave the Major Support Levels in play.

GBP/USD Price Action

At the time of writing, the Pound was down 0.17% to $1.15170. A mixed morning saw the Pound rise to an early high of $1.15492 before falling to a low of $1.15016.

Technical Indicators

The Pound needs to move through the $1.1535 pivot to target the First Major Resistance Level (R1) at $1.1591 and the Wednesday high of $1.15898. With no economic indicators to consider risk sentiment will likely influence.

However, barring dire US economic indicators, the GBP/USD would likely fall short of the Second Major Resistance Level (R2) at $1.1645.

The Third Major Resistance Level (R3) sits at $1.1755.

Failure to move through the pivot would see the Pound test the First Major Support Level (S1) at $1.1481. In case of a risk-off-session, the Pound would test the Second Major Support Level (S2) at $1.1425.

The Third Major Support Level (S3) sits at $1.1315.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 50-day EMA, currently at $1.15765.

The 50-day fell back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals. A GBP/USD move through the 50-day EMA ($1.15765) and R1 ($1.1591) would bring the 100-day EMA ($1.16428) and R2 ($1.1645) into play.

However, failure to break out from the 50-day EMA would leave the Major Support levels in view.

The US Session

It is a busier US economic calendar. Jobless claims, retail sales, and Philly Fed Manufacturing numbers will draw interest early in the US session.

While we can expect market reaction to the stats, the numbers would have to be dire to cause the Fed to veer off course.

Following the early stats, US industrial production numbers for August are due with business inventories for July. However, barring an unexpected fall in production, the numbers should have a muted impact on the dollar.

There are no FOMC member speeches to consider, with the FOMC in its September blackout period (September 10-22). The lack of chatter will leave the markets in data-dependent mode.

Ahead of today’s stats, the split between a 75-basis point and percentage point rate hike was 70% to 30% in favor of a 75-basis point hike.