Euro Steady Ahead of Fed


Bunds moved lower and European stocks moved higher as the EUR/USD logged a fresh intraday low at 1.1037 but has since steadied above 1.1060, leaving yesterday’s low at 1.1022 intact as short term support.

Market participants are waiting on the FOMC in the U.S., which concludes its two-day meeting Wednesday. No surprises are likely, and while the overall tone is likely to be more upbeat than the previous FOMC in June, the Fed is not likely to commit to a September rate lift-off either ahead of key data releases or given concerns about China’s financial markets and Greece, and given recent oil price declines.

Looking forward, Spain will release its GDP number on Thursday. Growth has likely held up in Q2, which will be the first major country to release official GDP numbers. Reform efforts are starting to have a positive impact, but unemployment remains high and there is the risk that reforms are being reversed after the elections later this year. For now though Spain continues to outperform and contribute to overall GDP growth in the Eurozone, which is also supported by the very accommodative monetary policy stance.

This is facilitating a gradual improvement on labor markets and the markets are looking for a decline in the German July jobless total of 5K, which should leave the jobless rate at a very low 6.4%. The overall Eurozone rate for June is seen unchanged at 11.0%.

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