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Record High Unemployment and Low Inflation Point to a Struggling Euro-Zone

Record High Unemployment and Low Inflation Point to a Struggling Euro-Zone

2012-07-31 09:44:00
Benjamin Spier, Technical Strategist
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THE TAKEAWAY: Euro-zone June unemployment remains at record high 11.2% -> July annual inflation estimated at 2.4% -> Euro remains unchanged in today’s session

The highest ever unemployment rate combined with a 17-month low inflation points to a Euro-zone economy that continues to struggle with its debt crisis. Euro-zone unemployment remained at 11.2% in June, steady with May’s unemployment which was revised higher from 11.1%. Meanwhile, annual inflation for July remained steady at 2.4% for the third month, according to initial estimates by the European Union Statistical Office. Both results were as expected by surveyed analysts.

Euro-zone unemployment rose by 127,000 in June to a total of 17.8 million people without jobs. The highest unemployment rate for June was in Spain, at 24.8%; while the lowest unemployment was recorded in Austria at 4.5%, followed by the Netherlands and then Germany, which had 5.4% unemployment.

The final annual inflation rate as well as a breakdown of monthly price changes for July will be released on August 16.

The European Central Bank will meet on Thursday to decide the interest rate for August. The continued low inflation as well as the rise in unemployment could lead the bank members to decide on another rate cut. The 0.25% rate cut in July was not seen by currency investors as significant enough to boost the Euro, and the single currency sold off against the dollar following the last month’s rate decision. Following ECB President Draghi’s pro-Euro comments last week, investors are still waiting for further confirmation of a possible Italian and Spanish bond purchase program that would have the ECB and EFSF buy the countries’ debt in primary and secondary markets.

EURUSD continued to trade around 1.2260 following both as-expected releases. The Euro is now trading close to even with today’s open. Support could be provided by 1.2234, the 50% expansion from May’s high to June’s low, while resistance might be found at the psychological 1.2300 line.

Record_High_Unemployment_and_Low_Inflation_Point_to_a_Struggling_Euro-Zone_body_eurusd_daily_chart.png, Record High Unemployment and Low Inflation Point to a Struggling Euro-Zone

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