Helena Izotova
The trading week of July 28 – August 1 has been active and volatile for Euro. According to weekly results, Euro future has managed to increase by 0.01%, and on Friday, August 1, growth of Euro has amounted to 0.30%.
A lot of key economic data on eurozone have been published, main of them are:
- slowdown of annual inflation of consumer prices in July to 0.4% from the previous 0.5%. European Central Bank has forecast that inflationary pressures will remain at the level of 0.5%, аnd its lasting decline can indicate the possibility of further softening of monetary politicy of the bank. In July 2013 inflation amounted to 1.6%. Lowering of inflation has its pluses and minus. Lowering of inflation has been partially conditioned by the drop in prices for energy resources, which, in its turn, has positive impact of importers’ profit. However, a number of countries in the European Union, including Spain , is already suffering from deflation. In Italy inflation has reached zero point.
- Basic inflation, without considering prices for foodstuffs, energy resources, tobacco, and alcohol, has remained unchanged, namely, 0.8%.
- In June the level of unemployment in eurozone has amounted to 11.5% against 12.1% one year earlier. Despite lowering of unemployment, its level remains too high. A great number of underloaded capacities in economy affects the growing deflation pressure. In June unemployment has risen in France, Austria, and Finland.
- Economic sentiment index in July has risen from 102.1 to 102.2. - Sentiment in services sector has dropped from 4.4 to 3.6.
- Business activity index in manufacturing sector has remained unchanged in July in comparison to June, namely, 51.8.
- ECB report on bank crediting for the second quarter has shown that for the first time since 2007 terms of corporate crediting have softened, and demand for credits has increased. New program of long-term bank crediting starts in September; it will be very timely in current circumstances.
Euro has had moderate reaction to publication of all this data. Currency future has had stronger reaction to economic data in the USA. Unexpectedly high GDP during the second quarter in the USA, which has shown growth by 4.0% in comparison to the first quarter, has become a catalyst of the lasting decline of Euro. However, on Friday, after publication of weaker Nonfarm Payrolls, according to which 209,000 working places have been created in July, instead of the expected 233,000, as well as small growth of unemployment rate from 6.1% to 6.2%, Euro stopped falling and rose according to daily results.
The season of group reporting is not the best in Europe. Lasting financial difficulties of Portuguese bank Banco Espirito Santo, as well as bond-debt default of Argentina, arise concern among investors about health of financial system in eurozone. Sales at European stock markets continue.
Next week there will be held a two-day meeting of European Central Bank with the following press-conference of the bank’s President M. Draghi, who will also answer the questions of analytics and reporters about perspectives of the bank’s economy and politicy.
According to Options Trade Department of Masterforex-V Academy, US economic reports will have more influence on lowering of Euro and change of exchange rate, but not data on eurozone. Friday growth of Euro was based on natural market reaction to publication of data in the USA, which has proved weaker than expected. Economy of eurozone undergoes negative influence of sanctions against Russia, as well as financial problems of Portugal and Argentina. Owing to growth of US economic activity and start of harsher monetary policy of US FRS, lowering of Euro can last in long-term perspective. Weaker Euro will weaken detorsion of deflationary spiral by increasing demand for export and will support fragile economic recovery of eurozone.
From the point of view technical analysis, Euro has dropped by more than 4.0% from the maximum of 2014 around 1.40. Daily chart of Euro future shows consolidation around 1.3370 at a time when there is no interest to sale, and Euro is growing, supported by growth of volumes on Friday, August 1, after reaction of market participants to Nonfarm Payrolls. Growth of Euro can last in short-term perspective.
Helena Izotova
