According to yesterday’s GDP report, the Eurozone economy continued to expand at a robust pace in the second quarter. The Preliminary GDP reading for the Q2 was released in line with the expectations at the level of 0.6%. At the same time, this reading was better than the last quarter figure of 0.5%. Moreover, the overall PMI Manufacturing Index for the whole Eurozone was just a tad worse than expected ( 58.6 vs. 58.8), but is still way above the fifty level.
The upbeat data is a reminder that pressure is rising on the European Central Bank to begin normalizing monetary policy in form of an interest rate hike or balance sheet reduction. Nevertheless, with the current elevated levels of the euro across the board (especially EUR/USD), there might be some complications. For the first time since January 2015, EUR/USD hit a two-and-a-half year high against the US Dollar, rising above 1.1800 level. The strong Euro may create additional problems for the Eurozone economy as exports become less competitive in foreign markets. The stronger euro will also put downward pressure on the inflation, which remains well below the ECB’s target of just under 2%. On the other hand, a robust economic growth in the Eurozone will raise the inflation anyway.
The question remains, what will the ECB do in order to solve the problem of the euro appreciation. The very likely solution is a delay of tightening policy in order to boost the odds that the recovery pace will prevail and the inflation will reach the central bank’s target. The other scenario assumes that finally Trump’s administration will act as supposed to and then the US Dollar could stabilize and perhaps pick up some lost ground.
Let’s now take a look at EUR/USD technical picture in a larger timeframe like weekly. The next mid-term target for EUR/USD might be at the level of 1.2000 where the unfilled gap down is still present. After the gap is filled, the pair might reverse and head back to the downside and it might even fill the other gap between the levels of 1.0832 – 1.0772.
The material has been provided by InstaForex Company – www.instaforex.com Source: Instaforex.com
Global macro overview for 02/08/2017:
According to yesterday’s GDP report, the Eurozone economy continued to expand at a robust pace in the second quarter. The Preliminary GDP reading for the Q2 was released in line with the expectations at the level of 0.6%. At the same time, this reading was better than the last quarter figure of 0.5%. Moreover, the overall PMI Manufacturing Index for the whole Eurozone was just a tad worse than expected ( 58.6 vs. 58.8), but is still way above the fifty level.
The upbeat data is a reminder that pressure is rising on the European Central Bank to begin normalizing monetary policy in form of an interest rate hike or balance sheet reduction. Nevertheless, with the current elevated levels of the euro across the board (especially EUR/USD), there might be some complications. For the first time since January 2015, EUR/USD hit a two-and-a-half year high against the US Dollar, rising above 1.1800 level. The strong Euro may create additional problems for the Eurozone economy as exports become less competitive in foreign markets. The stronger euro will also put downward pressure on the inflation, which remains well below the ECB’s target of just under 2%. On the other hand, a robust economic growth in the Eurozone will raise the inflation anyway.
The question remains, what will the ECB do in order to solve the problem of the euro appreciation. The very likely solution is a delay of tightening policy in order to boost the odds that the recovery pace will prevail and the inflation will reach the central bank’s target. The other scenario assumes that finally Trump’s administration will act as supposed to and then the US Dollar could stabilize and perhaps pick up some lost ground.
Let’s now take a look at EUR/USD technical picture in a larger timeframe like weekly. The next mid-term target for EUR/USD might be at the level of 1.2000 where the unfilled gap down is still present. After the gap is filled, the pair might reverse and head back to the downside and it might even fill the other gap between the levels of 1.0832 – 1.0772.
The material has been provided by InstaForex Company – www.instaforex.com
Source: Instaforex.com
Related Posts: