Fundamental Euro Forecast: Bullish
- Friday’s economic statistics showing a second-quarter Eurozone GDP growth rate of 13.7% year/year and a July inflation rate of 2.2% year/year will likely turn the European Central Bank more hawkish on monetary policy; a positive for EUR/USD and the Euro crosses.
- Moreover, the pair eased Friday after strengthening from Monday to Thursday, suggesting that profit-taking after the advance could provide traders with a better entry point for the trade.
Euro price well placed to advance further
Friday’s Eurozone data caught forecasters by surprise. The region’s second-quarter economic growth rate came in at a robust 13.7% year/year, even better than the predicted 13.2% and compared with a 1.3% contraction previously. Moreover, the July inflation rate came in at 2.2% year/year, above the forecast 2.0%, above the previous 1.9% and above the European Central Bank’s 2.0% target.
For sure, like other central banks, the ECB expects this high inflation rate to be transitory but, at the very least, the data should make its Governing Council think again about delaying tapering its monetary stimulus programs and that may well give EUR/USD another leg higher.
EUR/USD Price Chart, Daily Timeframe (April 1 – July 30, 2021)
Source: IG (You can click on it for a larger image)
As the chart above shows, the 1.19 level seems to be providing resistance. However, Friday’s fall in EUR/USD after a strong week suggests there was some profit-taking and that could provide Euro bulls with a better entry point to benefit from any further advance.
Week ahead: Final PMIs and German data
As for the week ahead’s data, there is little on the calendar. With traders likely to be focusing on the monetary policy meetings of the Reserve Bank of Australia and the Bank of England ahead of Friday’s US employment report, Monday’s German retail sales figures for June and the final Eurozone manufacturing PMI for July should pass under the radar.
Similarly, the final Eurozone July services PMI, Eurozone retail sales numbers for June, German factory orders for the same month and German industrial production data also for June will likely garner little attention.
— Written by Martin Essex, Analyst
Feel free to contact me on Twitter @MartinSEssex