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The data on consumer inflation in Germany which was published yesterday somewhat revived the dynamics of the single European currency in the currency market, but, as it turned out, only temporarily.
The presented values of consumer inflation for the month of June in Germany in both annual and monthly terms turned out to be unexpectedly higher than predicted values. So, the consumer price index on an annualized basis jumped 0.9% against 0.6% a year earlier and this forecasted value. The monthly data of the indicator also turned out to be significantly higher than the forecast growth of 0.3%, jumping by 0.6%. However, in May, the index fell by 0.1%. The harmonised consumer price index also increased by 0.8% over the year and 0.7% in June, respectively.
In the currency market, the single currency reacted to the data presented by the growth of the exchange rate of the euro/dollar pair, as well as crosses, where the euro is traded against other major currencies.
A question arises in this connection: is it worth expecting continued growth of the single currency, or is this breakthrough still local and will not receive a noticeable continuation?
The sharp recovery of the euro in the currency market was most likely limited and will not receive a continuation, at least for now. This is primarily due to the ECB's decision to increase liquidity in the European financial system in the wake of the previously announced broad economic support measures for countries in the eurozone, which received a strong blow as a result of restrictive measures taken in the spring under the influence of the coronavirus pandemic.
The euro, if it will grow locally, is only on the general wave of increased demand for risky assets and the resumption of a global depreciation of the US currency. But, in our opinion, this is fully prevented by the fear of the second wave of distribution of COVID-19. This topic is decisive and continues to dominate the market sentiment of investors. In addition, the strengthening of the euro may be restrained by decisive measures by the ECB to purchase bonds for another 1 trillion euros. This will undoubtedly increase the euro supply in the European financial system and will put pressure on it. In any case, the European regulator is actively moving in this direction.
The euro will receive support only if the market's focus is completely shifted from the issue of coronavirus infection to the results of the recovery of the European and American economies. Recent statistics indicate that America and Europe are slowly, but continuing to gain in the recovery process, which ultimately will lead to a more significant weakening of the dollar, though only in the long-term. But for now, we believe that overall sideways dynamics with a gradual weakening of the dollar in the markets will continue this week.
Forecast of the day:
The EUR/USD pair remains in the range 1.1165-1.1350. We believe that the pair will trade in this range until the end of this week.
The GBP/USD pair remains in a short-term downward trend in the wake of Brexit's highlight. The price going below the level of 1.2270 will lead to its decline to 1.2160.
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