Hardening Greece Rhetoric Generates Headwinds for Euro


EUR/USD is lower after Germany’s Merkel reportedly made remarks about a strong euro making reforms harder to achieve, while a hardening line from Greece’s creditors and a poll finding 51% of Germans favor Greece leaving the euro are also in the news mix. EUR/USD hit at low of 1.1150 following a 75 pip nosedive over a five minute period.

The move took out Thursday’s low at 1.1180 and brings the 20-day moving average at 1.1120 into scope. EUR/USD had been primed to react to bearish news following yesterday’s strong May retail sales and April business inventory data out of the U.S., which elicited upward revisions to Q1 and Q2 GDP forecasts.

Eurozone industrial production rose 0.1% month over month. Expectations had been for a stronger rebound from the drop in March, which was revised down to -0.4% month over month. The annual rate decelerated to 0.8% year over year from 2.1% year over year in March. The modest rise over the month ties in with mixed confidence indicators recently. Growth dynamics are stalling but the recovery is broadening, so the positive outlook remains intact, although we agree with the ECB that this is mainly a cyclical recovery and that further reforms are necessary to lift growth potential lastingly.

Spain May HICP confirmed at -0.3% year over year, in line with the preliminary reading and up from 0.7% year over year in the previous month. The pickup in the headline rates was in line with developments elsewhere and reflects mainly the fact that base effects from lower oil prices are falling out of the equation. The latter remain the key reason for the negative HICP number, with core inflation actually rising to 0.5% year over year in May from 0.3% year over year in April.

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