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EU Confidence Offsets Weak German Unemployment

David Becker
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EU Confidence Offsets Weak German Unemployment

EUR/USD hovered near support levels, aided by the stronger than expected economic confidence reading out of the Eurozone. The rise in the ESI economic confidence won’t be a game changer as the unexpected rise in German unemployment coupled with the weaker than expected M3 numbers and still very low inflation across the Eurozone should maintain the ECB’s course to taking action at its June policy meeting next week.

Eurozone May ESI economic confidence rose to 102.7 from 102.0. Consumer confidence was confirmed at -7.1 as expected. Mixed May confidence indicators, along with the unexpected rise in German unemployment, coupled with the weaker than expected M3 numbers and still very low inflation across the Eurozone will likely see the ECB taking action again next week. Although full blown QE still seems unlikely for now, the central bank will likely focus on another rate cut as well as alternative monetary policy measures.

German unemployment unexpectedly rose 24K in May, leaving the unemployment rate unchanged at 6.7%. The Labor Agency said the usual improvement in spring is slowing down although the overall labor market situation is still good.

French consumer spending declined 0.3% m/m, after rising 0.6% m/m in March. Spending on manufactured goods stagnated, after rising 0.7% m/m in the previous month. Annual rates still improved, with spending on manufactured goods up 1.2% y/y, after 0.7% y/y in March. The main drag on the overall number was a sharp decline in spending on energy, which dropped 11.4% y/y.

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The EURUSD continues to trade just below support near the 200-day moving average. The next level of target support is the February lows near 1.35. Momentum is negative with the MACD (moving average convergence divergence) index printing in negative territory with a downward sloping trajectory. The MACD is printing at its lowest level in the past 6-months pointing to negative future price action.

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