The Euro: reasons for further growth there
The retreat of the us dollar is gaining momentum – the us currency was the main outsider in the auction on Monday. There are no fundamental factors behind it, rather, due to the weakening pressure on the Euro, which continues to celebrate Italy’s exit from the political impasse. Dollar bulls further constrains the dynamics of treasuries – the yield on 10-year paper is trading flat at 2,905%.
The rest of the reasons for the growth of the single currency, not so much. More precisely, they are almost there. The economy continues to show disturbing signals that the General market sentiment, the Euro prefers to ignore. Meanwhile, the index of investor confidence from Sentix, which reflects the General mood in the region for the future six months fell to the lowest since October, 2016 value at the level of 9.3 compared to the forecast of 18.5 previous value of 19.2. Meanwhile, the producer price index, which serves as a barometer of inflation at the production level, showed zero dynamics against the forecast of growth by 0.2%.
Despite today’s statistics, expectations for a rate hike, the ECB is back on the agenda. As shown by the money market indicators, the market is fully laid the increase in the cost of credit for 10 b.p. in the third quarter of next year. Most of the restoration expectations was due to the retreat of the political risks in Italy and Spain, while the state of the economy still leaves much to be desired.
From a technical point of view, the EURUSD, which climbed to highs of 24 may near the level of 1.1740 may attract profit taking in the short term as the dollar remains in line with the bullish trend, as fundamental picture in the Euro zone at this stage does not involve raising the attractiveness of the single currency. In addition, on the way up quotes have to overcome the barrier of the 20-day moving average, which passes near 1.1760. It’s a sure breakdown will be possible only in the case of strong local pressure on the dollar.
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