The euro is in positive territory today and has pushed above the 1.0200 line. In the European session, EUR/USD is trading at 1.0213, up 0.16% on the day. I don’t anticipate much movement from the pair ahead of the weekend, with a light economic calendar in the US today.
Eurozone inflation hits new record
Eurozone inflation is expected to rise to 8.9% in July YoY, up from 8.6% in June. Energy prices continue to be the main driver behind surging inflation, with a massive 39% jump compared to July 2021. Anyone who has filled up a car will have noticed the sharp rise in petrol prices. Inflation is, however, much more broad-based than just energy prices, as food, alcohol, services and industrial goods are also rising in price. Herein lies the rub for the ECB, as broad-based inflationary pressures are difficult to reverse, and tend to push up inflation expectations as well.
The ECB joined the rate-tightening club very late in the game, although its lift-off hike of 0.50% earlier in July was higher than the 0.25% that the markets had expected. The ECB’s forward guidance had indicated a 0.25% move, but the ECB opted to disregard its guidance. It has now gone one step further, announcing after the July meeting that it would make rate decisions on a meeting-by-meeting basis, essentially throwing out forward guidance. Interestingly, the Federal Reserve has decided to follow suit, as Fed Chair Powell made a similar announcement after this week’s rate decision.
Amidst accelerating inflation, there was some good news as Eurozone GDP rose 0.7% QoQ in Q2, above the 0.6% gain in June and ahead of the 0.2% estimate. France and Italy also showed improved growth in the second quarter, but Germany, the locomotive of the bloc, failed to follow suit. Germany’s GDP fell to 0.0% QoQ, down sharply from 0.8% in Q1 and missing the very modest forecast of 0.1%. As the Ukraine war drags on and the threat of an energy crisis hovers above Europe, the outlook for the eurozone and the euro looks appears cloudy and uncertain.
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EUR/USD Technical
- EUR/USD faces resistance at 1.0304 and 1.0390
- 1.0191 is a weak support line. Below, there is support at 1.0105
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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.