U.S. Update: Optimism swings

What happened in Asia

Dollar and Yen continued losing ground as optimism about the global economy has helped to boost risk appetite early in the day, also supported by Nikkei that gained 1.9% closing above 10.300 points, highest level of the year.

Also, sentiment received an additional boost from the news that an auction of 7-year Treasury notes had attracted strong support from overseas central banks, unlike auctions for 2- and 5-year notes earlier in the week.

EUR/USD break above 1.4100, reaching 1.4155, 50% retracement of the last down leg 1.4300/1.4000 while GBP/USD also regain bullish steam and well sit above 1.6500, reached key 1.6550 zone. Japanese Yen corrections against greenback held above 95.20, ahead of U.S. GDP later in the day.

What happened in Europe

News in Europe early Friday, show European consumer prices fell by the most in 13 years in July after prices in the euro region dropped 0.6% from a year earlier, exceeding the 0.4% decrease forecast by economists, while euro zone rose to a 10-year high of 9.4% in June, though the level was less than expected. Coming from a revised to the downside 9.3%, the number was the highest since June 1999.

Optimism fade after the publication of the U.S. GDP advance for the 2Q, showing that despite economy contracted at a slower-than-expected pace in the second quarter, revision for the Q1 print a -6.4% the biggest decline since a matching fall in the first quarter of 1982 from a previously reported 5.5% drop. U.S. GDP has fallen for four straight quarters.
What to expect

Euro fell on the news, reaching 1.4100 while Gbp breached temporally 1.6500 on falling U.S. futures, pre America opening, thus the movement was short lived. Stocks struggle to regain the upside at the opening, and Chicago PMI gave the impulse needed: the business barometer increased to 43.4 from 39.9 the prior month, thus we need to remain that readings below 50 signal a contraction, and as long as we remain under that level, there’s not much to cheer about.

Dollar fell against European rivals with Euro quoting above 1.4160 level and Gbp again regaining 1.6500. Stocks remain positive, yet Japanese Yen continues appreciating after failing to break above yesterday’s 95.88 against greenback, reaching an intraday low of 95.10.
Eur/Usd outlook

Taking a look at daily charts, pair remains clearly trapped in past two months rage, thus the bias seems to have turned slightly bullish, after recent marginal break of the 1.4100 didn’t hold. Early to say, and hard to break, weekly close above 1.4220 area will be bullish supportive for next week. Strong positive sentiment in stocks still is not enough to push euro up, and as longer the 1.4300/35 area caps the upside, the less chances we have of an upside run. On the other hand, weekly close under mentioned 1.4100, also not seen while mean another retest of the 1.4100 zone. Pair remains stuck in range, and seems conditions could extend this August. Any attempt to the downside, should remain capped by the ascending trend line around 1.3960 to keep the range valid. That is the key point to the downside, as break under such level will probably precede another midterm bearish leg