Euro Tests June Highs following Inflation Reports
EUR/USD extended to a new high at 1.3662 following the Eurozone inflation figures, even though the flash estimate of HICP came did not produce the expected tick higher. Other inflation figures such as M3 money supply unexpectedly accelerated to 1.0% year over year from 0.8% year over year in May, so there was something for the bulls.
The 10-year T-note over Bund yield spread has also pushed back to the 128 basis points from sub-127 basis points earlier, though a move beyond 130 basis points and into fresh long-term high territory to generate much excitement.
Eurozone June HICP inflation remained steady at 0.5% year over year, despite the marked acceleration in the German headline rate, which was counterbalanced by a decline in Spanish and Italian HICP rates. However, core inflation picked up to 0.8% from 0.7% in the previous month. M3 money supply growth, released earlier also picked up and overall the data mix supports the ECB’s current wait and see stance, with central bankers waiting for the last round of easing measures to take effect. Any hopes for quick broad based asset purchases are likely to be disappointed. Bund futures remained slightly higher on the day after the data.
The EURUSD is poised to test the June highs near 1.3680, while support is seen near the 5-day moving average at 1.3628. Momentum remains strong as the MACD (moving average convergence divergence) is printing in positive territory with an upward sloping trajectory. Last week the 5-day moving average crossed above the 10-day moving average which shows that a short term up trend is in place. The RSI is moving higher with price action reflecting accelerating positive momentum, while printing near 54, which is in the middle of the neutral range.
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