The euro has posted slight gains on Thursday. In the European session, EUR/USD is trading at 1.1941, up 0.12% on the day.
Germany’s economy is showing a broad-based and strong recovery, which is good news for the eurozone and the euro. The well-respected Ifo Business Climate index climbed to 104.0 in June, up from 102.9 and above the consensus of 103.6 points. This marked the strongest reading since November 2018 and coincides with an easing of health restrictions as Covid receded. The report stated that the “German economy is shaking off the coronavirus crisis”.
This positive data comes on the heels of solid German PMIs in May. Services and manufacturing continued to show strong expansion, at 58.1 and 64.9, respectively. Eurozone PMIs posted similar numbers, signalling that the recovery is gaining traction across the bloc.
Which way Fed?
In the US, there has been conflicting rhetoric out of the Fed. In testimony before a congressional subcommittee, Jerome Powell tried to reassure lawmakers that the surge in US inflation was temporary and inflation would ease and fall below the Fed target of 2 per cent. Notably, Powell said that the Fed would not raise rates solely because of high inflation.
Fed member Bowman also sounded dovish, but other members showed a hawkish bend. Fed member Kaplan said he expects a rate hike in 2022, joining members Bostic and Bullard in this stance. Investors can be forgiven for not knowing where the Fed stands, hence the palpable nervousness that the Fed may tighten of policy sooner rather than later. The markets will be keeping a close eye on the PCE Price Index on Friday, which is projected to rise to 3.4% in May y/y, up from 3.1%. This index is the Fed’s preferred inflation gauge, and any surprises from the release could affect the direction of the US dollar.
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EUR/USD Technical
- EUR/USD faces resistance at 1.2055 and 1.2251
- There is support at 1.1879. Below, there is support at 1.1756
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