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Euro Ends Week on a Rally but Outlook Remains Dim

H.S. Borji
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Euro Ends Week on a Rally but Outlook Remains Dim

The euro rebounded at the end of the week, as the US dollar came under pressure following President Barrack Obama’s decision to conduct airstrikes in Iraq to halt the spread of the Islamic State of Iraq and the Levant.

The euro was also supported by firm French industrial production figures and stronger German exports.

France’s industrial output rose 1.6 percent in June, following a 2.3 percent drop the previous month, the French government reported today. Economists forecast a monthly gain of 1 percent.

Meanwhile, German exports rose faster than forecast in June. Europe’s largest economy saw its total exports rise 0.9 percent, almost double the rate of forecasts. However, Germany’s trade balance weakened from €18.8 billion to €16.2 billion, as imports surged 4.5 percent.

In US data, wholesale inventories rose slower than forecast in June, raising speculation government economists will have to revise their estimate of second quarter growth.

US wholesale inventories climbed 0.3 percent in June, following a downwardly revised gain of 0.3 percent the previous month. The June rate came in at half the consensus estimate.

The Commerce Department said last month the US economy grew at an annual pace of 4 percent between April and June, exceeding forecasts. The government will post revised GDP figures at the end of August.

The EURUSD rebounded from a nine-month low Friday, reaching an intraday high of 1.3429. The pair consolidated at 1.3410, advancing 0.37 percent. The pair is likely to find support at 1.3335 and resistance at 1.3422.

Europe’s common currency rebounded sharply against the British pound, as the UK’s trade deficit unexpectedly widened in June.

The UK’s goods trade deficit widened from £9.150 billion to £9.413 billion, the Office for National Statistics reported today. Economists forecast the deficit to improve to £8.8 billion.

The EURGBP advanced 0.68 percent to 0.7993, exceeding the 50-day exponential moving average. The pair is testing the 0.7990 resistance. Initial support is located at 0.7922.

The euro advanced against the Japanese yen, as the EURJPY climbed 0.33 percent to 136.86. Initial support is likely found at 136.07 and resistance at 136.96.

Despite today’s climb, the technical and fundamental pictures for the euro remain negative. The EURUSD is trading more than 200 pips below its long-run averages, and is likely to face more selling pressure next week.

The European Central Bank on Thursday voted to keep its cash rate unchanged at 0.15 percent, as expected. ECB President Mario Draghi said heightened geopolitical tensions in Eastern Europe could dampen the currency region’s already nascent recovery.

The Russia-West standoff over Ukraine has been largely blamed for the euro’s recent weakness. The common currency is likely to face continued pressure as Ukraine teeters on the brink of civil war, igniting a bigger standoff between Eastern and Western powers.

Earlier this week Russia levied import bans on US and European Union food products in response to Western sanctions against it. Norway, Australia and Canada will also be affected by the one-year ban, which includes fruit, vegetable, meat and dairy products.

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