Market News & Insights
29 August 2014

Euro Traders Eye Key CPI Inflation Data

EUR/USD 1.3172
GBP/USD 1.6597
GBP/EUR 1.2606 (0.7932)
EUR/CHF 1.2060
GBP/CHF 1.5201
GBP/AUD 1.7740

Risk appetite has subsided in the latter part of the week as some key data has disappointed and geopolitical tensions once again rear their head. The geopolitical story will continue to be ongoing especially as there are a number of conflicts just awaiting a spark, however Ukraine and Russia currently carry the largest potential to disrupt. Trade links and the close proximity to Europe see European markets hit as tensions escalate.

Yesterday European stocks were in the red on news Russian troops had crossed the boarders into the southern Ukraine. In the US stocks slid with the S&P falling back below the 2000 level, while the USD also faced declines. In Asian markets stocks dropped and the JPY was in position to have its first weekly rally against the USD in three weeks as risk aversion favours the safe haven currency.

The EUR slipped across the board as a host of data failed to provide any support for the single currency. German labour figures saw another 2k added to unemployment lines versus -5k expected, the figure had little impact on the unemployment rate which held at 6.7%. Euro area sentiment surveys also slipped as economic confidence has dwindled. Finally, the German CPI inflation reading saw inflation hold at .8% annually, with no change through August. Those looking for a firmer reading here were left disappointed and the EUR has been left struggling for any upside ahead of today’s key data releases.

If yesterday’s German prints were to be a precursor for today’s release then the EUR could potentially be facing further downside. Eurozone CPI data is due for release with year on year inflation expected to fall once again to .3%, while core inflation is expected to remain unchanged at .8%. With the inflation outlook heavily linked to potential ECB action, today’s print, ahead of next week’s ECB meeting, carries significant weight.

While a weak reading will no doubt see the EUR slide continue, the market is already speculatively short EUR so any higher reading may well see the single currency rally into next week’s key meeting. This morning German retail sales already posted declines of 1.4% through July. Eurozone unemployment is also due out but expected to remain unchanged at 11.5%

It has been a quiet week for GBP this week, data has been very light but the pound appears to have benefited, certainly against the struggling EUR and against the USD which has lost some ground the last two trading days. GBPUSD is looking at taking back the 1.6600 handle this morning and at current levels will represent the first GBP advance against the USD in 8 weeks.

The second revision of Q2 US GDP saw growth rise to 4.2%, versus an expected drop to 3.9%. In recent markets this would usually have been cause for a USD rally but the lack of response from the greenback signals we may need another catalyst to see another leg forward for the USD. Even in a risk off environment the USD struggled, despite its safe haven status and we may see further declines in the USD as we enter a long bank holiday in the US for Labour Day.

We certainly have not seen a reversal in USD strength and there is still plenty to take USD attention this afternoon with Personal consumption and the Chicago PMI data due for release from the US.