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Euro Hits New Trend Low on Weak Inflation and Confidence Numbers

David Becker
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Euro Hits New Trend Low on Weak Inflation and Confidence Numbers

The EURUSD notched up a fresh trend low against the dollar, sterling, the yen, among other currencies. Continued talk of the ECB moving toward QE along with negative rates at the front-end of German and French yield curves is driving the euro’s underperformance. After hitting support at 1.3150, the currency pair bounced and tested the 1.3190 level on short covering. Momentum continues to remain negative while the RSI is oversold. Tensions in Europe along with a weak interest rate differential are likely to keep the trend on a downward path.

Weak inflation is likely to give the ECB room to reduce interest rates. German July import price inflation fell back to -1.7% year over year from -1.2% year over year in the previous month. Prices were down 0.4% month over month. The latest weakening of the EUR has not had an impact so far and lower energy prices were the main driving factor behind the decline over the month, with prices excluding energy actually up 0.1% month over month and down just 0.5% year over year.

Confidence also remains subdued. The German GfK consumer confidence dropped to 8.6 from 8.9 in August, with the latter revised down from 9.0 reported initially. The breakdown, which is only available for August showed that the main driver of the decline was the sharpest deterioration in economic expectations since the 1980s, with the economic cycle reading falling to just 10.4 from 45.9 in the previous month. Income expectations dropped to 50.1 from 54.7 and the willingness to buy dropped to 49.3 from 51.0. More signs then that the trade war with Russia are not only having an impact on export oriented sectors, but also the domestic economy and threatens to derail the German recovery, which of course will also have an impact on the Eurozone.

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