EURUSD Talking Points:
- Falling unemployment keeps the Euro from sliding despite falling inflation.
- EURUSD remains subdued ahead of Powell’s commentary on Fed policy.
- TLTROs to be a key point to look out for at the ECB’s monetary meeting on Thursday.
The EURUSD pushed above the 1.1245 handle at the end of Monday’s session as disappointing ISM US data sent the dollar lower, before trading in a 17-pip range during the overnight session. The pair headed higher again at the open of the European session, pushing the it past 1.1270 before it reversed in anticipation of Eurozone inflation and unemployment figures being released today. Mixed data provided a small push for the Euro before EURUSD settled around 1.1246.
Preliminary Eurozone Headline inflation grew by 1.2% in the month of May (exp. 1.3%) down from 1.7% in the previous month and Eurozone Core inflation grew 0.8% in May (exp. 0.9%), down from 1.3% in the previous month. The figure is in line with other inflation releases seen last week in the Eurozone, with drops in Germany, Spain and France, signalling that underlying price pressures are falling.
Despite falling inflation, unemployment figures provided some relief as the unemployment rate fell to 7.6% in the month of May, despite expectations of the rate to remain the same as last month’s reading of 7.7%. Unemployment has been the key outlier around the globe in the face of a global economic slowdown as many monetary policies setting bodies, including the RBA and the Fed, have focused on improving employment to remain less dovish than markets expectations. But there have been caution signs as last week saw Germany’s unemployment rose for the first time since 2013, as 60,000 more people were considered unemployed in the month of May.
Key Events to Look Out For
A data-heavy week lies ahead for both the Euro and the US dollar. German, French and Eurozone PMIs will be released on Wednesday. Despite expectations for the figures to be little changed from the previous month, worse than expected numbers could send the Euro lower ahead of the ECB’s rate meeting on Thursday, the key event for the Euro this week. Even though it is expected that the Central Bank will keep rates unchanged at -0.4%, the focus will be on how dovish they remain and whether the Eurozone needs to consider additional monetary stimulus, especially as the ECB is currently looking for a new President to replace Mario Draghi. A key point to look out for in Thursday’s meeting is for any mention on the terms of the new round of TLTROs for the Eurozone banks.
On the US dollar side, Federal Reserve Chairman Jerome Powell is expected to give his outlook on the Fed policy in an event taking place today in Chicago, where a more dovish stance could push the USD lower against other major currencies, as markets are now pricing in at least two 0.25% US interest rate cuts by the end of the year. Part of the downgrade in expectations on the future of the US economy is that yield curves have inverted signalling that a recession may be nearing. Of key importance to the Fed’s decision on rates will be non-farm payrolls and wages figures to be released on Friday.
Hawkish vs Dovish: How Monetary Policy Affects FX Trading – David Bradfield, Markets Writer
Eurozone Debt Crisis: How to Trade Future Disasters – Martin Essex, MSTA, Analyst and Editor
KEY TRADING RESOURCES:
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- See our Q3 forecasts to learn what will drive FX the through the quarter.
--- Written by Daniela Sabin Hathorn, Junior Analyst