The euro is in green territory for a fifth successive day as the dollar continues to show broad weakness. EUR/USD is up 1.1% this week and is poised to record its best week since May.
German CPI outperforms target
The markets are being treated to a data dump in Europe, highlighted by inflation and GDP reports. Eurozone inflation for July came in at 2.2% YoY, above the consensus of 2.0%, which is the new ECB target. This comes on the heels of German Preliminary CPI, which also was stronger than forecast. CPI rose 3.8%, above the estimate of 3.3%. If inflation continues to rise, the ECB will have to give more thought to tightening policy in order to curb inflation. As has been in the case in recent months with the Federal Reserve and Bank of England, inflation in eurozone has emerged as a market-mover, after years of weak inflation was all but ignored by the markets.
German and eurozone GDP reports (QoQ) rebounded in the second quarter. Germany’s economy grew by 1.5%, shy of the consensus of 2%, but a welcome improvement from the Q1 reading of -1.5%. Eurozone GDP rose 2.0%, above the estimate of 1.5% and ahead of the previous read of -0.3%.
The US dollar remains under pressure after the dovish FOMC meeting. The markets have bought into Jerome Powell’s consistent message that higher inflation is transitory. Powell stated at the meeting that a September taper would be dependent on the employment sector showing substantial improvement. In the US, GDP and unemployment claims missed their targets, which has dovetailed nicely with the Fed’s stance that inflation will ease and the economy is still in need of substantial monetary stimulus.
- EUR/USD is testing resistance at 1.1862. Above, there is a monthly resistance at 1.1986, which is protecting the symbolic 1.20 line
- On the downside, there are support lines at 1.1815 and 1.1737