The EUR/USD rebounded on Monday, but was down from session highs after preliminary data showed a stronger than expected rise in Eurozone inflation.
The EUR/USD regained 1.12 after a late-week tumble erased the pair’s 8-month high. The EUR/USD, which had surpassed 1.17 during last week’s “Black Monday,” was trading at 1.1225 at the start of Monday’s New York session. That represents a gain of 50 pips or 0.5%. The EUR/USD had climbed to an intraday high of 1.1267 in Europe. The EUR/USD is likely to face immediate resistance at 1.1280. On the downside, initial support is likely found at 1.125.
After four consecutive gains, the US dollar weakened against a basket of currencies on Monday. The dollar index, a weighted average of the greenback against six global peers including the euro, dipped 0.2% to 95.94.
In economic data, Eurozone inflation rose faster than forecast in August, but remained well below the European Central bank’s target of just below 2%.
The Eurozone’s consumer price index edged up 0.2% annually in August, unchanged from the previous month and slightly above forecasts calling for 0.1%, Eurostat reported on Monday. So-called core inflation, which strips food, energy and alcohol, was also unchanged at 1% annually in August.
Stubbornly low inflation presents a serious problem for the ECB, which earlier this year implemented a €1.1 trillion stimulus program on top of record-low interest rates. The ECB’s Governing Council meets later this week to discuss monetary policy and set the interest rate. While no changes are expected, policymakers will likely consider alternative ways to bring inflation closer to its target.
Separately, Germany’s Federal Statistics Office said the country’s retail sales surged in July, suggesting Europe’s largest economy was on solid footing at the start of the third quarter.
Retail sales rose 1.4% in July, the strongest growth pace in ten months. Compared to year-ago levels, retail receipts surged 3.3%. Economists had forecast a monthly gain of around 1% and an annualized increase of 1.5%.
Stronger than expected data were unable to lift most European stock indices on Monday, as shaky investor sentiment continued to prevail. Germany’s DAX index was down 0.9%, having fallen nearly 10% on the month. The CAC 40 in Paris was down 1% and the IBEX 35 in Madrid lost 1.2%. London’s FTSE 100 index rallied 0.9%.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.