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EUR/USD Flat, but Faces Further Volatility on Declining Sentiment

H.S. Borji
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EUR/USD Flat, but Faces Further Volatility on Declining Sentiment

The euro was little changed against its US counterpart Thursday, but declining Eurozone inflation could weigh on sentiment as the markets assess the European Central Bank’s next move.

The EURUSD rebounded from an intraday low of 1.3372 to trade at 1.3390, tumbling 0.04 percent. Initial support is likely found at 1.3371 and resistance at 1.3420. The pair is trading well below its long-run averages, having tumbled more than 2 percent over the past 30 days.

Year-to-date, the EURUSD has declined 2.7 percent, owing mostly to losses incurred in July.

Investors were weighing mixed Eurozone data Thursday after Germany posted disappointing inflation numbers in the previous session. Germany made headlines again Thursday with retail sales and unemployment figures.

German retail sales advanced 1.3 percent in June, following a 0.2 percent dip the previous month, the Federal Statistics Office reported today. Year-on-year, retail revenues were up 0.4 percent.

On the labour front, German unemployment declined 12,000 in June as the unemployment rate held steady at 6.7 percent.

Separately, Eurozone inflation edged lower in July, sliding further into what the European Central Bank has described as the “danger zone” of below 1 percent.

Eurozone consumer prices advanced at an annual rate of 0.4 percent in July, down from a 0.5 percent pace the previous month, the European Commission reported today. Economists forecast no change from the June reading.

Compared to June, consumer prices advanced a meagre 0.1 percent.

July inflation was the lowest since October 2009, fueling concerns the currency bloc was spiraling toward deflation. Deflation poses a serious threat to recovery and economic stability. Several Eurozone countries have already experienced it, including Spain, Greece and Portugal.

Eurozone inflation has trended below the 1 percent mark since October. In response, the ECB has slashed interest rates twice, introduced a negative deposit rate and made cheap long-term loans available to banks. Policymakers have vowed to take more action should inflation continue to fall.

In other trading, the euro advanced against the British pound, as the EURGBP climbed 0.14 percent to 0.7931. The pair, which has advanced a quarter of a percent this week, faces initial support at 0.7912 and resistance at 0.7933, the 20-day moving average.

UK house prices rose at a slower rate than forecast in June, as new lending rules weighed on buyer activity. House prices increased just 0.1 percent, the smallest gain in 15 months, Nationwide reported today. House prices had increased 1 percent the previous month.

Compared to July 2013, house prices were up 10.6 percent.

Despite the slowdown, house prices have surged £18,000 in one year to reach a new record high of £188,949 in July.

Earlier this week the Bank of England said mortgage approvals rebounded sharply in June, a sign the recent slowdown in housing activity was only temporary. June mortgage approvals climbed 8.9 percent to 67,196.

The EURJPY was little changed Thursday after advancing sharply in the previous session. The pair consolidated at 137.64, declining 0.06 percent. Initial support is located at 137.07 and resistance at 138.12.

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