Euro traders have had to contend with a mixed bag of economic data at the onset of the week.

  • First, there was the unexpected decline in Germany’s factory orders released Monday, which showed a 0.2% drop in April compared to the month prior. This was in stark contrast to the projected 0.5% month-on-month gain.
  • On Tuesday, Germany’s April industrial production also posted a surprise 1% month-on-month contraction, compared to the market estimates for 0.4% growth, due to lower domestic demand.
  • On the other hand, the ZEW survey of Germany’s current conditions in June is at its highest since July 2019.
  • Also, the broader Eurozone posted a Q1 GDP final print today that had been revised upwards from a 0.6% quarter-on-quarter contraction to 0.3%, while the year-on-year figure was changed from a 1.8% decline to 1.3%, thanks to some positive surprises out of Italy.

Although the headline GDP print suggests that the Q1 recession in the Eurozone was not as deep as expected, potentially setting the base for a stronger recovery this quarter, yet the April manufacturing data out of the region’s largest economy shows that such optimism could be on shaky ground.

These push and pull factors have kept EURUSD just shy of the 1.22 psychological mark for the time being.


Markets are awaiting the potentially bigger catalyst for EURUSD that’s lying in wait.

And it’s less likely to be the European Central Bank policy meeting on Thursday, but more so the release of the May US consumer price index.

The biggest theme in global financial markets at present is the debate surrounding the timeline for the Fed’s next move. Some segments of the markets argue that US consumer prices that run too hot too fast could trigger the world’s most influential central bank (the Fed) into paring back its support for financial markets sooner than expected. Meanwhile, the Fed is urging patience, saying that these inflationary pressures are likely to be transitory, which implies they’ll maintain their ultra-accommodative policy stance for longer.

And the euro is not immune from such shifting expectations in this ongoing debate.

Consider how EURUSD quickly recovered in the wake of another miss in the US nonfarm payrolls print. May’s headline figure came in at 559k, which is lower than the forecasted 675k, prompting markets to rapidly unwind their optimism over the anticipated blockbuster NFP print which failed to materialise.

And with the European Central Bank unlikely to adjust their policy settings at their 10 June meeting, this sets up the US CPI announcement to be the larger catalyst for the FX universe, and more so for the world’s most-traded currency pair. Of course, should the ECB provide surprise cues that policymakers are warming up to the idea of reining in their Pandemic Emergency Purchase Programme (PEPP), that is sure to jolt the shared currency as well.

For now, the focus remains on what happens stateside.

Markets are currently expecting a 4.7% year-on-year increase in May, with the month-on-month reading expected to come in at 0.4%. Core inflation is forecasted to grow 3.5% compared to May 2020, while a 0.5% rise is expected compared to April 2021.

Further signs of inflationary pressures could send US Treasury yields climbing, boosting the dollar along the way while prompting EURUSD to test the 1.21 Fibonacci support level once more. A lacklustre inflation print however may encourage more dollar softness, potentially allowing EURUSD to breach 1.22 again.


Alternatively, the less volatile conduit could be the Euro index which is an equally-weighted index comprising the following pairs:

Hence this index’s performance this week could be mitigated by how the euro fares against other G10 peers, as opposed to the full force of an inflation shocker being manifested in EURUSD.


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