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Weak Consumer Sentiment Keeps Euro in Check

David Becker
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After grinding higher for most of the week, the Euro was nearly unchanged on Friday following weaker than expected confidence numbers. Inflation data in Germany came out in line with expectations which kept a roof on the upside for the European currency. Momentum continues to point to a higher EURUSD currency pair.

Eurozone ESI economic confidence came in weaker than expected, falling to 102.0 in June, while the May reading was revised down to 102.6 from 102.7 reported initially. The breakdown showed a slight rise in services confidence, but declines in industrial and consumer confidence and the weaker than expected figure ties in with the disappointing PMI, Ifo and ZEW readings this month, which highlighted that the Eurozone recovery, while broadening somewhat, remains subject to downside risks, with confidence dented by concerns about the Ukraine and Iraq.

On the inflation front, German state CPI numbers in line with expectations, with annual rates rising 0.1-0.2% points, which supports our forecast for a rise in the pan German national rate to 1.0% y/y from 0.9% y/y. The HICP rate is seen rising to 0.7% from 0.6%, still considerably below the ECB’s upper limit for price stability of 2%, but without signs of a deflationary spiral in the Eurozone’s largest economy.

The EURUSD attempted to push up to resistance near the weekly highs at 1.3650 but failed to make headway. Support is seen near the 10-day moving average near 1.3598. Momentum remains positive with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory. The RSI is printing at 48, which is in the middle of the neutral range and reflects the consolidation of the currency pair.

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