The EUR/USD surged more than 150 pips on Friday, as Eurozone core inflation rose faster than forecast and unemployment held steady.
The EUR/USD climbed to an intraday high of 1.1085 following back-to-back declines on Wednesday and Thursday. The EUR/USD would subsequently settle at 1.1055, advancing 1.1% or 125 pips. Key levels for the EUR/USD include 1.1080 (resistance) and 1.0920 (support).
The EUR/USD was supported by an unexpected rise in Eurozone core inflation in July. Core consumer prices, which strip away volatile goods such as food and energy, rose 0.9% annually in July, the European Commission reported on Friday. Economists anticipated no change from the 0.8% annual rate reported in June.
Inflationary pressures were otherwise tame throughout the Eurozone this month. The consumer price index (CPI) rose 0.2% in the 12 months through July, unchanged from June.
According to analysts, there is no certainty that core inflation would continue to rise in the coming months. Plunging energy prices and weak demand throughout most of the currency union suggests inflation will remain well below the European Central Bank’s target of just under 2% for the remainder of the year.
The ECB, which launched a €1.1 trillion stimulus program back in March, may have to continue its bond-buying program beyond the planned September 2016 end date, according to the International Monetary Fund. The international lending institution says very low inflation will continue to present downside risks for the region.
The ECB expects inflation to reach 1.5% in 2016. The Bank expects euro area growth to average 1.5% this year and 1.9% in 2016.
Separately, the European Commission reported that euro area unemployment was unchanged at 11.1% in June. The data continued to show large discrepancies across member-states. Unemployment was as low as 4.7% in Germany and as high as 25.6% in Greece.
The US dollar index declined across the board on Friday, plunging 0.9% to 96.73. Dollar pairs will be active next week amid several high profile data releases, including the July nonfarm payrolls report. The US economy created 223,000 nonfarm jobs in June. A similar increase in July could raise expectations for a rate increase as soon as September.
The Federal Reserve held off on raising interest rates this past week, but acknowledged that the jobs market had improved considerably. Analysts widely expect the Fed to begin raising interest rates in at least one of its final three meetings of the year.
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.