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Euro Reverses Gains as Russian Tension Intensify

David Becker
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Euro Reverses Gains as Russian Tension Intensify

The EURUSD is lower reversing earlier gains as separatists, backed by Russian troops, reported to be advancing in the eastern part of the country. The euro has dipped to below 1.3180 after earlier peaking at 1.3217. Resistance is seen near the 10-day moving average near 1.3250. The latest evolution in the Ukraine crisis has more than offset any impact the nudge higher in German state inflation data might have had along with the stronger than expected employment numbers.

German state CPI data nudged higher in August, with headline numbers rising 0.1 points. Saxony reported a steady headline rate, but numbers suggest that overall German CPI will come in a tad higher than anticipated and rise to 0.9% y/y from 0.8% y/y in the previous month. With the Spanish HICP rate also coming in marginally above expectations and M3 growth accelerating these do not seem to be numbers that would spur ECB action next week.

Eurozone ESI economic confidence fell to 100.6 in August, from 102.1 in the previous month. This was a sharper than expected decline, but not a total surprise considering the weakness in other confidence indicators this month. The breakdown showed services confidence falling to 3.1 from 3.6 and the industrial reading falling to -5.3 from -3.8. Consumer confidence was confirmed at -10. The headline reading is the lowest since December last year, and while it remains at relatively high levels and considerably above the long term average of just 94.1, the data will add to concerns about the Eurozone economic outlook.

German unemployment unexpectedly rose 2K in August, after falling 12K in the previous month. The adjusted jobless rate remained unchanged at 6.7%. Unemployment remains at low levels, but the volatile monthly developments highlight that the numbers are bottoming out and with the labor market a lagging indicator, there is unlikely to be much of an improvement in coming months as falling business confidence will be keeping a lid on hiring plans.

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