Euro Slides as Inflation Jumps

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The euro is sharply lower on Friday and is currently trading just above the 1.04 line, down 0.76%.

Eurozone inflation exceeds

Eurozone CPI for June was higher than expected, at 8.6% YoY. The estimate stood at 8.4% and inflation rose sharply from the May reading of 8.1%. This set a record. There was better news from the core reading, which fell marginally to 3.7% YoY, down from 3.8% in May. Investors gave the inflation data today thumbs up and sent the euro to fall before the weekend.

With inflation continuing to accelerate and the ECB reviewing down its growth forecast, the spectrum of stagflation in the bloc remains very real. The ECB is undoubtedly dismayed that inflation has been higher than expected, but it is unclear whether the record high CPI release will be enough to deliver a super-large 0.50% increase for its take-off next month. At this week’s ECB forum, ECB chief Lagarde spoke loudly and eased concerns about a recession, but there are plenty of dark clouds hovering over the eurozone economy. High inflation, weak growth and the energy crisis with Russia mean that there is certainly a good reason to worry about a major downturn in the eurozone economy.

In the United States, there are worrying signs that the economy is weakening. US Personal Expenditure fell to 0.3%, down from 0.6% (0.4% exp.). Inflation seems to be declining slowly and the labor market is in solid shape. CME’s FedWatch puts the likelihood of a supersize 0.75% rate hike up 75% as markets expect the Fed to remain aggressive against inflation. Can a recession be avoided? Fed Chairman Powell says all the right things by reducing concerns about the word “R,” but many market participants have their doubts and feel that the U.S. economy will not be able to avoid a recession.

EUR / USD Technique

  • EUR / USD is testing support at 1.0408. The next support level is at 1.0346
  • There is resistance at 1.0482 and 1.0544

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