- Euro US Dollar Slides to 1.1790 – US Dollar Euro Hits 0.8477
- Eurozone Industry Slows – Euro Stumbles in Response
- Risk Aversion Stabilises – US Dollar Climbs
The Euro US Dollar exchange rate stumbled this morning with the release of notable Eurozone industrial production figures.
Year-on-year industrial production in the Eurozone area increased by 2.6% in June, significantly down from the revised 3.9% gain demonstrated in May and missing market forecasts of 2.8%.
The month-on-month figure demonstrated a drop of -0.6%, far below the previous 1.2% increase and worse than the forecast decline of -0.4%.
The primary contributors to this contraction were slowdowns in the output of capital, consumer and intermediate goods, with capital goods falling -1.9%, durable consumer goods by -1.2%, and intermediate goods by 0.3%.
The Euro immediately stumbled as a result of this release, with traders unsettled by the possibility that economic output in the Eurozone may be slowing.
US Dollar (USD) Bolstered Despite Dip in Risk Aversion
The US Dollar has made some notable gains today against the Euro (and indeed most of the majors) despite markets defrosting in the wake of subsiding tensions with North Korea.
Although investors are no longer flocking to safe-haven assets like the US Dollar in the face of geopolitical uncertainty, USD has still managed to recover some of last week’s losses.
Last Friday saw the ‘Greenback’ weakened by disappointing domestic inflation figures, with US consumer prices increasing 1.7% year-on-year, just below market expectations of 1.8%. This data drove down rate hike bets for 2017 to 36%, demonstrating widening scepticism regarding a final rate hike this year.
Whilst this figure missed expectations, it did still demonstrate growth, beating June’s 1.6% increase. In this respect it is possible that markets are reassessing last week’s sell off and buying back into the US Dollar.
That being said, tensions between the US and North Korea could flair again at a moment’s notice so the prospect of further USD volatility remains.
EUR USD Forecast: The Week Ahead
Notable releases this week for the Euro include Tuesday’s German gross domestic product (GDP) figures and Wednesday’s Eurozone GDP figures.
The Eurozone year-on-year GDP figure is predicted to come in at 2.1%, up from previous 1.9%.
Should this occur then the Euro may find some room to claw back gains against the ‘Greenback’.
The US, on the other hand, is due a run of notable releases tomorrow, consisting of import and export prices, advance retail sales and business inventories. The most significant of these is the advanced retail sales figure, which is forecast to come in at 0.4%, far higher than the previous -0.2%.
Wednesday will feature US housing and building permits data, with jobless claims and industrial/manufacturing production stats for July due on Thursday, as well as a speech by Fed Kaplan.
Kaplan’s stance will be heavily studied, particularly in light of the recent disappointing US inflation figures. If he infers that interest rates shouldn’t rise for a third time in 2017, the Euro could capitalise. Conversely, hawkish sentiment will push the EUR USD exchange rate lower still.