Summer lull is here
After three straight days of gains, the USD took a breather on Friday as trade war worries take a backseat. EUR/USD surged more than 0.50% after European countries finally reached a deal on migration. It is quite surprising to see that the market is cheering this achieved given the fact that investors spent the last two weeks focusing exclusively on trade tensions. However, it is always more fun to end the week on a positive note.
The equity investors are also enjoying the last trading day of the week as most of indices are wearing green. The Nikkei ended the day up 0.15%; Chinese stocks partially erased previous losses with the CSI rising 2.55%. Nevertheless, Australian and New Zealand stocks were the exception as they fell 0.33% and 0.62% respectively.
With central banks in the rear-view mirror, market participants will pay more attention to political developments and trade tensions during the summer. There is therefore a good chance that the market will remain in risk-off mode.
European leaders summit started on yesterday finally ended on a positive note. The European Council came up with a unanimous decision to relocate refugees among member states. Key measures decided during the meeting consist of a more effective control of EU external borders, halt smugglers routes and the possibility of setting up migrant centers at a later stage.
Accordingly, the announcement came in positively on the marketplace. The single currency is leading the way this morning, heading higher against major pairs while Euro Stoxx 50, CAC 40 and DAX indices are up +1.37%, +1.36% and +1.29% respectively. Overall, we maintain a positive view on the EU region, as political uncertainties around the EU easing slightly. The risk remains on UK side with regard to Brexit deadline agreement (March 2019).
The EUR/USD bullish momentum continues, currently trading at 1.1630 and approaching hourly resistance at 1.1666 (29/06/2018 high).
German inflation above the 2% mark for two months in a row
Slightly decreasing at 2.10% (prior: 2.20%), German inflation remains above the 2% threshold set by the European Central Bank, a rather positive signal for the German economy that remains worrisome amid its short dip in Q1 growth numbers (Q1 GDP y/y: +1.60%; prior: +2.30%), maintained trade war tensions and a decline in May retail sales.
Growing energy prices and decreasing revenues from non-specialized stores, wholesale and related consumption markets (-0.70% m/m) and non-specialized stores (-3.50%) suggest a strong decline in disposable income as of May, suggesting a possible downtrend in German growth 2018 forecast of 2%.
