Despite generally weak economic data last week, the Euro managed to recover from Tuesday’s low as the currency consolidates its declines. Indeed, from a technical perspective, it appears that EUR/USD could climb further, and shifting interest rate expectations are working in favor of gains as well.
[B][B]Euro: Will the Recovery Continue?[/B][/B]
[B]Fundamental Outlook for Euro: Bullish[/B]
- Euro-zone trade balance falls to worst deficit in 2 years
- Euro-zone Services and Manufacturing PMI points toward European recession
- According to the ZEW survey, European investor outlooks are improving
Despite generally weak economic data last week, the Euro managed to recover from Tuesday’s low as the currency consolidates its declines. Indeed, from a technical perspective, it appears that EUR/USD could climb further, and shifting interest rate expectations are working in favor of gains as well. On Friday, Credit Suisse overnight index swaps actually moved to price in just under 25bps worth of cuts within the next 12 months compared to 50bps on Monday.
Looking ahead to next week, there are few major indicators on hand, though some releases can spark short-term volatility. Given the surprising improvement in the German ZEW survey, there is some potential for a gain in the IFO expectations report, though the gauge of current sentiment could ease. Meanwhile, German labor markets are anticipated to perk up for the third consecutive month. Finally, Eurostat estimates for Euro-zone CPI are projected to show that inflation held at a 4.0 percent pace in August. Given European Central Bank President Jean-Claude Trichet’s more bearish stance on economic growth, a weaker-than-expected CPI reading could exacerbate the market’s speculation that the central bank will cut rates within the next year. On the other hand, a jump in CPI could be just the thing to get traders to remember just how hawkish Mr. Trichet can be and send the euro higher. – TB
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