On Thursday the euro dropped below parity and touched the lowest level in relation to the USD since December 2002. As Friday trading got underway the single currency regained some ground and is back just above parity. There are several headwinds facing the single currency, including the war in Ukraine and a looming recession that may be exacerbated by the intensifying of the ongoing energy crisis; all against a background of rising inflation and growing risk of fragmentation within the eurozone. To compound the gloomy scenario for the euro, on the other side of the equation the US dollar continues to strengthen, as the Federal Reserve shows unflappable determination to curb rising consumer prices and may hike rates by a full percentage point later this month. Tough times ahead for the single currency, as the geopolitical and macroeconomic scenarios in Europe remain a cause for concern and the discrepancy between the stances of the ECB and its North American counterpart continue to grow.
Ricardo Evangelista – Senior Analyst, ActivTrades
Stocks traded higher in Europe on Friday, with all sectors in the green, despite a mixed open following disappointing macro figures from China. Investors have been slightly worried about seeing the Chinese economy slowing down in Q2 after GDP and industrial production both fell short of expectations. However, the strong retail sales data topping estimates has eased concerns somewhat. Elsewhere, it seems most market operators are buying the news after selling the rumour of more monetary tightening brought by a higher US CPI yesterday. Investors are now anticipating a 0.75-1% rate hike from the Fed at the end of the month, with an end to this tightening cycle projected around 3.2% in 2023 where policies will then be expected to ease in order to combat slower economic conditions, brought by a potential recession. For now, traders will keep their focus towards data, paying a close attention to corporate results as well as today’s US retail sales data for June, due later this afternoon. Yesterday’s losers are among today’s best performers in Europe as energy, real estate and tech shares drive the STOXX-50 higher. The European benchmark has been significantly supported by bull traders inside the crucial 3,380pts/3,325pts zone, but prices will need to edge above 3,435 to get out of the danger zone and head towards 3,510 pts and 3,580 pts by extension, which isn’t the most likely scenario technically speaking.
Pierre Veyret– Technical analyst, ActivTrades
Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.