A EUR Pause with Inflation Data in Focus for the EUR and the USD

It’s a busy end to the first half of the year for the markets, with economic data out of the Eurozone, the UK and the U.S for the markets to consider.

We’ve seen central bank focus on weaker inflation ease to a certain degree, though today’s prelim June figure out of the Eurozone are unlikely to be ignored as the EUR pauses for breath following a solid run through the first 4-days of this week.

June’s figures are forecasted to reflect a slight pickup in inflation, which will likely be EUR positive, though core inflation continues to fall well below the ECB’s objective, should the numbers be in line with or even slightly better than forecasted.

Draghi may have talked down the ECB’s concerns over inflation, driving the EUR to $1.14 levels, but even with an ECB move in the 2^nd half of the year, monetary policy will continue to be considered very accommodative over the short-term.

The Dollar sell-off is certainly overdone with the markets having moved on central bank commentary, which has provided some upside for the Dollar going into the European session, the Dollar Spot Index recovering from an intraday low 95.47 to 95.739, a 0.12% gain at the time of the report, the upside largely attributed to the EUR, which is down 0.27% at $1.14099 at the time of the report.

Positive economic data out of both consumer spending figures out of both France and Germany this morning did little to the direction of the EUR, with any immediate gains falling back as the markets look ahead to this afternoon’s stats out of the U.S.

Inflation figures out of the U.S will have greater significance from the market’s perspective than the Eurozone preliminary numbers this morning, with the FOMC members raising red flags on the need to lift rates further in a weakening inflation environment. There was good news for the Dollar bulls on Thursday, with 3^rd estimate GDP figures for the 1^st quarter coming in ahead of 2^nd estimates and forecasts, which has likely contributed to the view that the moves against the Dollar through the week may have been over exuberant.

The FED’s preferred inflation measure, the Core PCE Price Index figures, are scheduled for release this afternoon and with forecasts pointing to an easing in May, we could see the Dollar cough up today’s gains, a 3^rd rate hike for the year in the balance, with inflation the key consideration for the doves.

It’s certainly been an interesting end to the first half of the year and Dollar volatility will likely pickup in the 2^nd half, as the markets continue to assess the state of the U.S economy and the FED’s perspective on monetary policy, the softer Dollar a positive for both the economy and inflation.

Ahead of this today’s stats out of the Eurozone and the U.S, the pound will be in focus, with final estimate 1^st quarter GDP and business investment numbers scheduled for release. With U.S GDP numbers having been revised up and the BoE Governor seemingly joining the hawks, positive numbers will provide further support to the view that a move by the BoE is imminent. Cable is up 0.08% at $1.30173 at the time of the report, with the direction through to the close hinged on this morning’s numbers, any weakness likely to lead to a sizeable drop in the pound and a reconsideration of the recent BoE hawkishness.