EUR Talking Points:
- EURUSD pushes past 1.1376 as investors brush of weak Eurozone data and remain focused on Trump-Jinping G-20 meeting
- Eurozone downside risk is already priced in the markets, moves in EURUSD will come on the back of USD data and trade war progress
EURUSD seemed to push through worse than expected business confidence figures in the Eurozone as the pair continued to trade around its 3-month highs. Despite business confidence figures released at 0900 GMT showing that confidence in the Eurozone has dropped yet again, the pair continued to trade above 1.1376 as it waited for German inflation figures to be released. The pair then dropped slightly to 1.1370 as German figures showed that regional inflation is picking up but the YoY Harmonized ICP remained unchanged in the month of June, and the monthly figure dropped from the previous month. Even though the figures were in line with expectations the drop in monthly HICP dampened trader’s sentiment after local inflation figures released earlier in the day were better than expected.
PRICE CHART: EURUSD ONE-MINUTE TIME FRAME (INTRADAY)
The lack of reaction in the Euro after worse than expected inflation and economic sentiment figures proves that investors are already pricing in a slowing Eurozone given that growth has been stagnant for some time and inflation has been an ongoing concern for the ECB, as prices have failed to pick up above the 2% target despite very low interest rates in place for some time. A large part of the pressure on the currency pair comes from the USD side, as a recent dovish-turn from the Fed has left investors worried about the future growth prospects in the US. Key focus remains on tomorrow’s G-20 meeting between Donald Trump and Xi Jinping as a much-anticipated trade deal could finally take place. Nonetheless investors remain weary of the success of such talks and USD pairs are expected to experience heightened volatility ahead of the meeting as different remarks from top US and Chinese leaders lead to confusion about the likelihood of a successful trade deal taking place.
Overall sentiment in the Eurozone economy has fallen again as most readings out today came in worse than expected. The economic confidence was down to 103.3 (Exp. 104.70 from 105.1 in the previous month, indicating that sentiment is that the economy in the Eurozone is weakening. The drop is led mostly by the fall in industrial confidence followed by a fall service sentiment and Business climate. Consumer confidence remains at -7.2.
DAILY CHART: EUROZONE ECONOMIC CONFIDENCE
Other figures released this morning showed that Italian Business and Consumer confidence have both dropped in June, coming in at 100.8 and 109.6 respectively.
A preliminary reading for German CPI shows that monthly inflation has increased to 0.3% in the month of June, up from 0.2% in May, with the yearly figure at 1.6%, up from 1.4% in May and above expectations of 1.4%. The Harmonized ICP, which compares a country’s inflation figure to those of the members of the EU, was unchanged from the previous month figures, coming in at 0.1% MoM and 1.3% YoY.
Prices in Spain fell 0.1% in May compared to the month of May as YoY inflation drops to 0.4%, its lowest level since November 2016. The drop in prices comes on the back of cheaper energy bills, in contrast to the rise they experienced this time last year. Yearly inflation was expected to be unchanged from the previous month’s figures of +0.8% and no changes in prices were expected from the month of May (Exp. 0%).
Key focus will be on tomorrow’s inflation reading for Italy and France for further insight into the Eurozone CPI figure that will be released at 0900 GMT.
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--- Written by Daniela Sabin Hathorn, Junior Analyst
To contact Daniela, email her at Daniela.Sabin@ig.com
Follow Daniela on Twitter @HathornSabin