The euro briefly pierced below the important psychological level of US$1.10 on Wednesday. The pair declined to a low of US$1.0992 before lifting marginally towards the close. The pair closed the session down 0.14% at US$1.1005.
The euro lacked any notable catalysts in the previous session. There was no eurozone economic data for investors to digest, which left the euro to trade at the will of the US dollar for most of the session. Today there is much more for euro investors to sink their teeth into, with the release of the eurozone business climate indicator and the German inflation report.
German inflation, as measured by the consumer price index (CPI) will be the most closely watched release of the day for euro investors, if not for the week. Analysts are expecting German inflation to decline -0.6% month on month in October. However, on an annual basis analysts are predicting an increase to 1.3%, up from 1.2%. Whilst this is still a good distance from the central bank’s 2% target, it is still a move in the right direction. A tick higher in inflation could give the euro a well needed boost.
Could Germany be turning a corner?
Last week data showed that Germany had narrowly avoided a recession. German GDP increased 0.1% in the third quarter. This was ahead of the -0.1% contraction that analysts had forecast. Earlier this week GFK consumer confidence figures showed that the mood was improving in Europe’s largest economy.
The data is showing that the German economy, as a whole, is proving to be resilient to the deep slump in the manufacturing sector. The manufacturing sector has contracted sharply across recent months as exporter nation Germany is caught up in slowing global demand amid the ongoing US – China trade war. Should data continue to show signs of the German economy stabilising the euro could find some support.
Eurozone Business climate indicator
Whilst much of the recent focus has been on German economic performance, today the euro could receive a boost from the Eurozone business indicator. Analysts are expecting the indicator to tick higher in November, a sign that confidence is very slowly returning.
Eurozone inflation will be under the spotlight on Friday. Analysts are also forecasting a slight increase in consumer prices in November. This too could boost the euro.
Dollar Pauses After Wednesday’s Data Driven Rally
The dollar was in demand in the previous session. The mood towards the greenback lifted following strong data releases.
Data showed the US economy picked up in the second half of this year. The second estimate of the US gross domestic product, for the third quarter, was 2.1% at an annualised rate. This was above the 1.9% that analysts had forecast and an increase from the 2% growth recorded in the second quarter of the year.
Adding to the positive sentiment, US durable goods orders also surpassed expectations, increasing 0.6% month on month. City analysts had pencilled in a significantly lower -0.8% decline. These figures will go some way to relieving fears over the health of the US economy.
Data showing that the US economy is still performing well will alleviate concerns that the Fed will need to ease monetary policy again. After three rate cuts this year US dollar investors have been anxious that the slow down in the US manufacturing sector will spill over into the dominant consumer sector. Should that be the case the US economy could slow significantly and quickly.
However, today’s data supports the Fed’s views that the US economy is holding up and not in need of any immediate monetary policy easing. The US stock market soared to yet another fresh record high boosting demand for the greenback.
Retaliation From China?
Trade remains on investors’ radar; investors will be looking out for any comments regarding US – China trade negotiations. After President Trump signed the Hong Kong bill into law overnight, investors will be watching for any signs of retaliation from China. Additionally, investors will be looking for an update on the US delegation going to Beijing for further trade talks. Reports have indicated that the US team of top negotiators will only go if there is a high chance of a deal.
Today is the Thanksgiving holiday. US stock markets are closed. The foreign exchange markets are open. That said volumes will be significantly lower than normal. Friday is also just a half day
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 EUR = 1.12829 USD
Here, €1 is equivalent to approximately $1.13. This specifically measures the euro’s worth against the dollar. If the U.S. dollar amount increases in this pairing, it’s positive for the euro.
Or, if you were looking at it the other way around:
1 USD = 0.88789 EUR
In this example, $1 is equivalent to approximately €0.89. This measures the U.S. dollar’s worth versus the euro. If the euro number gets larger, it’s good news for the dollar.