NEWS / Macroeconomic Stories

Dollar tests psychological Euro levels; German PPI data gives cause for concern

July 19th - Without doubt it??™s been a turbulent time for the common currency, losing out to the dollar in light of the Middle East conflict and investor perception that the greenback perhaps offers a safer haven for cash. The 1.2500 key psychological support level was successfully tested late yesterday, leading EUR/USD down as low as 1.2475 before quite simply the position was left looking a little oversold. It should be bourn in mind that the ECB has only recently started on its policy of interest rate tightening whereas arguably the Fed will soon start to take a more dovish approach and this coupling ought to offer more upside to EUR/USD. Furthermore, data such as this morning??™s German PPI reading ??“ up 6.1% on the year ??“ cannot be ignored. Primarily this rise ??“ which was above analyst expectations ??“ is seen as coming from higher fuel prices but with consensus being that there??™s little prospect of a reversion here ??“ and indeed should Iran become embroiled in the Israeli conflict crude could jump sharply ??“ numbers like this are set to start filtering through to consumers in due course, surely giving Trichet little option but to tighten rates further to keep spending in check. Bear in mind that the next ECB monetary policy meeting has been upgraded from a teleconference to an in-person event and this alone must underline the fact that a close call over rates is to be expected on August 3rd.

David Hutchings and Enis Mehmet