After fluctuating within a painstakingly narrow range over the past four trading days, the EUR/USD has finally broken out to the upside.
Since this morning?s economic releases were mostly weaker than expected, the move was primarily driven by EUR/JPY buying as well as quarter end flows, German retail sales dropped significantly in the month of May while the annualized pace of French GDP growth fell short of expectations. Even though the Eurozone business climate indicator improved, consumer confidence deteriorated in the month of June. Although these are certainly disappointments, they will not deter the European Central Bank from remaining hawkish next week. They will continue to signal that interest rates are headed higher and ECB President Trichet may even say that the central bank needs to be “strongly vigilant,” which are code words for expect a rate hike at the next monetary policy meeting. Aside from the ECB interest rate decision, there will are also a number of very important Eurozone economic data due for release. This includes manufacturing and service sector PMI as well as PPI and German factory orders. The Swiss franc has rallied on the back of rising risk aversion. Next week, we are expecting Swiss PMI, CPI and unemployment. The recent weakness of the Swiss franc should continue to pave the way for stronger growth.