- EZ Consumer Confidence (AUG) – ACT: -24.9; EST: -24.9
- Energy prices a concern going forward.
- ECB walks tight rope as winter approaches.
EURO FUNDAMENTAL BACKDROP
Eurozone consumer confidence for August printed in line with forecasts (see economic calendar below) coming off July lows. While there is some optimism around the slight improvement, economic and industrial sentiment missed estimates showing underlying concerns by other stakeholders including manufacturers, retailers and service providers.
EUR/USD ECONOMIC CALENDAR
Source: DailyFX economic calendar
The unease stems from soaring energy prices and with the European region heading into the winter months, pressure on the consumer and industry will take its toll should elevated energy prices endure. Looking at German wholesale electricity prices we can clearly see the trend higher which is likely to continue through to the end of 2022. Germany is often used as a barometer for the eurozone with the economy being the largest from the constituent nations.
GERMAN WHOLESALE ELECTRICTY PRICES
Declining sentiment in the EU will add unwanted pressure on the European Central Bank (ECB) in their pursuit to quell inflation particularly after the hawkish speech by Federal Reserve Chair Jerome Powell last week at the Jackson Hole Economic Symposium. The increasing divergence between central banks (Fed and ECB) has bolstered the USD and will add to inflationary pressure via a weaker euro. Money markets are currently pricing in a 62bps interest rate hike for the September 8th meeting but with tough ties ahead I foresee the ECB sticking with 50bps due to the current watery fundamental environment. Just before the consumer confidence release, the ECB’s Lane delivered some aggressive statements including the need to continue raising rates which helped prop up the euro. Another ECB official (Robert Holzman) a known hawk may well add to this narrative later today during his speech leading to further upside.
ECB INTEREST RATE PROBABILITIES
EUR/USD DAILY CHART
Chart prepared by Warren Venketas, IG
IG CLIENT SENTIMENT DATA: BULLISH
IGCS shows retail traders are currently LONG on EUR/USD, with 66% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positioning we settle on a short-term upside bias.
Contact and follow Warren on Twitter: @WVenketas