Eurozone GDP Growth Eases Modestly But Remains Healthy

Eurozone data, news and analysis:

• Eurozone GDP grew by a weaker 0.3% quarter/quarter in Q2, down from 0.4%, and the year/year growth rate slipped to 2.1% from 2.5%.
• Meanwhile, Eurozone inflation rose to 2.1% in July from 2.0% and the core rate also edged higher.
• However, the data are unlikely to alter the outlook for Eurozone interest rates or move EURUSD out of its recent narrow trading range.

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Economic growth eases in the Eurozone

Eurozone economic growth slipped in the second quarter of the year but continued to expand healthily while inflation in July edged up to 2.1% – higher than the European Central Bank’s target of “below but close to 2.0%”. However, the data leave expectations of stable Eurozone interest rates until at least the end of next Summer unchanged and the recent narrow trading range for EURUSD intact.

Official statistics showed Eurozone GDP expanded by 0.3% quarter/quarter in Q2, below the previous 0.4%. The economy grew by 2.1% year/year, down from 2.5%. Headline inflation in July edged up to 2.1% from the previous 2.0%, the core rate nudged up to 1.1% in July from 0.9% and the unemployment rate was unchanged at 8.3% in June after a downward revision of the May number.

The data showed economic growth was lower than analysts had expected while inflation was higher. However, they are broadly in line with ECB expectations and will therefore have no impact on the bank’s monetary policy. It intends to leave Eurozone interest rates unchanged at least “through the summer” of next year and the data releases contain nothing to prompt a sharp move in EURUSD either way.

EURUSD Price Chart, Daily Timeframe (April 13 – July 31, 2018)

Chart by IG

The Euro edged up on the stronger-than-expected inflation figures. Technically, EURUSD has now moved higher for four consecutive sessions and a break above resistance from the trendline connecting the recent lower highs is now possible. However, further resistance lies at the 1.1791 July 9 high, the 1.18 “round number” and the 1.1852 June 14 high so any appreciation is likely to be modest.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex