Article by ForexTime

EUR/USD retraced back to the 1.3365 area after lifting a peak of 1.3391. A news report that Lithuania’s foreign minister saying that he has hears that Russia shipped military equipment into Ukraine last night has weighted on the euro. The double rejection from 1.34-plus levels over the last two days, meanwhile, affirms that technically bearish tone is persisting. Bond yields continue to decline amid the ongoing demand for safety. German 10-year yields are holding slightly above the 1% mark, after dipping below that level Thursday in the wake of weaker than expected GDP numbers.

Eurozone Q2 GDP on Thursday disappointed as German activity contracted and French growth stalled. Italy meanwhile has fallen back into recession and only strong growth rates in former crisis countries such as Spain, prevented a contraction in overall Eurozone GDP. Still, the weakness in Q2 is partly the flip side of the stronger than expected Q1 number. While confidence indicators do show some weakness, and the balance of risks remains on the downside, we see data in line with the ECB’s central scenario of modest but ongoing growth, and do not expect a change in the central bank’s wait and see stance.

German GDP growth contracted 0.2% q/q in Q2, while Q1 was revised down to 0.7% q/q from 0.8% q/q reported initially. French GDP stagnated and together with the 0.1% contraction in Italian growth and an 0.6% q/q rise in Spanish GDP that left the overall Eurozone number unchanged compared to the first quarter of the year. The recovery is beginning to stutter and the weak numbers will add to concerns that the trade war with Russia is threatening to derail the German recovery.

Germany’s Welt reported that including the rising costs for private pension provisions, inflation rates in Germany would have been around 1% points above official rates for a while and stand currently at around 2%, already in line with the ECB’s definition of price stability. The ECB has repeatedly tried to re-assure especially German consumers that their savings are safe, but it is also true that the drop in interest rates and yields is hitting private pension funds and that falling estimated returns means current contributions have to be topped up.

The EUR/USD is trading in a tight range around its 10-day moving average at 1.3378.  Momentum is turning positive with the MACD (moving average convergence divergence) index generating a buy signal.  The RSI is also turning higher reflecting positive momentum, while printing near 37, which is in the lower end of the neutral range.

Article by ForexTime

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