Euro Bounces Through Resistance Following in line CPI

EUR/USD has logged a high of 1.1037 so far, which extended the recovery from Monday’s at 1.0891, and slicing through resistance at the 50-day moving average. A step-up in top-level political pressure from key Eurozone leaders to come up with a bailout deal that would be acceptable to the Greek government has given the euro support. Eurozone CPI was also confirmed at +0.3% year over year, up from 0.0%, in final May data. On the dollar side, a minor boost to the rekindled Fed tightening theme from above-forecast May PMI and construction spending data on Monday hasn’t been sufficient to offset broader euro gains. Focus will fall on factory orders numbers today, ahead of the May payrolls report on Friday.

EMU May CPI rose to 0.3 % from 0.0% year over year, in line with our forecast and median. Core inflation jumped to 0.9% year over year from 0.6% year over year. This is the first time in six months that the headline rate is in positive territory and the move back above zero should finally quieten any deflation concerns, which we always thought were exaggerated, as the decline in headline numbers was mainly due to base effects from lower energy prices, which are falling out of the equation now and together with the weaker EUR are driving up inflation again. The ECB’s very accommodative policy stance is adding to price pressures in countries such as Germany and the quicker than anticipated rebound could see the ECB lifting its inflation projections at this week’s council meeting.

German May jobless numbers fell 6k, over the month on a seasonally adjusted basis. This is slightly less than anticipated, but the jobless rate was unchanged at 6.4%, as expected. The labor market is very tight, and Germany is seeing more industrial action and higher wage rises than in previous years. This means that low unemployment is not only boosting domestic demand and consumption, which is driving the current recovery, but is also adding to the risk of inflation overshoots in the medium term and a loss of competitiveness as German wage growth continues to overshoot the European average.

Bank of Greece governor optimistic that there will be no Grexit, and thinks a compromise is not far away as most of distance to fiscal sustainability in Greece has been achieved. Stournaras’ comments follow those of Tsipras, who said the Greek government has committed its own proposal for a compromise.

The post Euro Bounces Through Resistance Following in line CPI appeared first on Forex Circles.

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