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EUR/USD Falls Further as German Inflation Cools

H.S. Borji
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EUR/USD Falls Further as German Inflation Cools

The euro fell to fresh lows against the US dollar Wednesday, as German consumer prices cooled and US economic data kept demand for the greenback elevated.

The EURUSD bounced from an intraday low of 1.3367 to consolidate at 1.3376, declining 0.25 percent. The pair, which continues to trade at its lowest levels since September 2013, faces initial support at 1.3351 and resistance at 1.3435.

The EURUSD has declined 2.3 percent since July 1, as weak Eurozone inflation reinforced the view the European Central Bank wasn’t finished with monetary stimulus.

Consumer inflation in Germany slowed this month, which will likely push the Eurozone rate lower and place greater pressure on the ECB to take immediate action.

German consumer prices increased at an annual rate of 0.8 percent in July, down from the previous month’s 1 percent pace, the Federal Statistics Office reported today in Wiesbaden. The reading was in line with the consensus view.
Compared to June consumer prices rose 0.3 percent.

The harmonized index of consumer prices used by the European Union showed German consumer prices advanced 0.8 percent annually, official data showed.

Separately, Spanish consumer inflation was weaker than forecast in July, falling at an annual rate of 0.3 percent, the National Institute of Statistics reported today. A median estimate of economists called for a decline of 0.1 percent.

The European Commission on Thursday will probably show Eurozone inflation increased 0.5 percent in the 12 months through July, unchanged from the previous month.

Eurozone consumer inflation has trended below 1 percent since October 2013. The ECB, which targets inflation at just below 2 percent, has cut interest rates twice since November. The central bank cut its overnight rate to 0.15 percent and introduced a negative deposit rate at the June policy meetings in an effort to lift consumer prices away from “dangerously low” levels.

Low inflation has a tendency of reinforcing lower inflation expectations, which can lead to a dangerous cycle of declining consumer spending.

In other data, Eurozone economic sentiment unexpectedly improved this month, despite escalating tensions between the West and Russia over Ukraine.

The economic sentiment indicator rose 0.1 points to 102.2. Economists forecast a decline to 101.8.

Separately, US data today continued to reinforce the view the Federal Reserve would contemplate lifting the benchmark interest rate sooner than previously forecast. The US economy grew at an annual rate of 4 percent in the second quarter, the Commerce Department’s advance estimate showed today.

The ADP Institute also said private payroll employment increased 218,000 this month, led by a sharp rise in service sector jobs.

Official nonfarm payrolls data will be released Friday.

In other trading, the euro advanced against the yen, which was weaker across the board after Japanese factory data disappointed.

Japan’s industrial production declined 3.3 percent in June, following a 0.7 percent advance the previous month. Compared to June 2013, industrial production was up 3.2 percent.

The EURJPY advanced 0.55 percent to 1.3767, surpassing three intraday resistance points. Initial support is located at 136.75.

The EURGBP was virtually unchanged Wednesday, trading at 0.7914. The pair faces initial support at 0.7904 and resistance at 0.7926.

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