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#1 03-08-2020 09:55:53

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: the pair hits a 2-year high, European inflation supports it

EUR/USD: the pair hits a 2-year high, European inflation supports it


The de-correlation between the euro's momentum against the USD and the main stock markets in the euro zone (Paris, Frankfurt) became more pronounced during the weekend. The USD continues to pay for Trump's management of the virus crisis, the virus crisis itself, and the plunge in Q2 GDP, following a late start to the so-called non-essential economic activities in the spring.

As a reminder, with more than 151,500 deaths linked to the virus, the United States is the world's most affected country in absolute numbers. The number of new daily cases, although occasionally on the decline, continues to form a plateau with a timidly descending slope, after a peak close to 75,000 on 17 July.

US quarterly GDP (Q2) in advanced data showed a free fall of 33%, against a more pessimistic consensus of -35% in data. For Germany, the largest economy in the Euro-Zone, the quarter-on-quarter change in German GDP was -9.9%, missing the target by more than one point. It is France's turn to unveil, via INSEE figures, a plunge of 14% in the first estimate for the second quarter, a period fully marked by the virus crisis and the economy's being put under a bell.

"In the second quarter of this year, real gross domestic product (GDP) fell sharply: -14%, after -6% in the first quarter. It is thus 19.0% lower than in the second quarter of last year. The negative trend in GDP in the first half of this year is linked to the cessation of "non-essential" activities in the context of the containment implemented between mid-March and early May. The gradual lifting of restrictions leads to a gradual recovery of economic activity in May and then June, after the low point reached in April", INSEE points out.

For the Euro Zone as a whole, GDP fell by 11.9%, within the expected range. The real good surprise comes from inflation, and this is what allows the single currency to "hold" against the USD at these levels. Excluding food, energy, alcohol and tobacco, prices in the Euro Zone, in the very first estimate for July, rose by 1.2% on an annualized basis, where on average, the economists and analysts questioned saw a much more timid increase (+1%).

Traders also took note of employment figures, ahead of the publication next Wednesday of the ADP survey and especially Friday of a much awaited federal NFP (Non Farm Payroll) report. Weekly U.S. jobless claims for week 30, with 1,433,500 new claims, narrowly beat the target. In concrete terms, these registrations are on the rise again, but less strongly than expected.

Right now, the pair is trading at $1.1776.

MEDIUM-TERM FORECAST

In view of the key chart factors we have mentioned, our opinion is neutral in the medium term on the pair's exchange rate.

We will maintain this neutral view as long as the pair is positioned between the $1.1745 support and the $1.2000 resistance.

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