The recent drop in inflation rates in Germany, France, and Spain have triggered speculation about a softer eurozone flash CPI figure, suggests Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING Bank.
This comes as the market consensus expects the headline to fall to 6.3% year-on-year from 7.0%, with the core slipping to 5.5% from 5.6%.
Inflation Drops Fuel Euro Speculation
"A faster fall in eurozone inflation than in the US would confound a market that had been betting that the greater weight of assets in US inflation would bring that measure lower faster than in the eurozone," says Turner.
This observation underlines the potential repercussions of the current economic scenario on the dynamics of the EUR/USD exchange rate.
Turner further observes that the softer European inflation this week has also seen eurozone swap rates drop relative to those in the US.
"Eurozone swap rates drop relative to those in the US," he adds. This trend further illustrates the shift in the investment landscape due to the current inflation dynamics.
Turner underscores that the two-year EURUSD swap differential has now returned to levels seen in March, putting further weight on the EUR/USD.
EUR/USD Performance
Delving into short-term predictions, barring any substantial surprises in the eurozone CPI data, the Euro to Dollar exchange rate is likely to outline a range of 1.0650-1.0720, in what Turner refers to as a "holding pattern ahead of tomorrow's NFP data."
Despite this, the strategist believes that this area should provide a strong base for the pair during the summer months.
"We reiterate that this 1.05/1.07 area should prove a base for EUR/USD this summer," Turner mentions.
He substantiates this by pointing out that the current conditions are not nearly as severe as those that pushed the EUR/USD much lower in the same period last year.
This comes as the market consensus expects the headline to fall to 6.3% year-on-year from 7.0%, with the core slipping to 5.5% from 5.6%.
Inflation Drops Fuel Euro Speculation
"A faster fall in eurozone inflation than in the US would confound a market that had been betting that the greater weight of assets in US inflation would bring that measure lower faster than in the eurozone," says Turner.
This observation underlines the potential repercussions of the current economic scenario on the dynamics of the EUR/USD exchange rate.
Turner further observes that the softer European inflation this week has also seen eurozone swap rates drop relative to those in the US.
"Eurozone swap rates drop relative to those in the US," he adds. This trend further illustrates the shift in the investment landscape due to the current inflation dynamics.
Turner underscores that the two-year EURUSD swap differential has now returned to levels seen in March, putting further weight on the EUR/USD.
EUR/USD Performance
Delving into short-term predictions, barring any substantial surprises in the eurozone CPI data, the Euro to Dollar exchange rate is likely to outline a range of 1.0650-1.0720, in what Turner refers to as a "holding pattern ahead of tomorrow's NFP data."
Despite this, the strategist believes that this area should provide a strong base for the pair during the summer months.
"We reiterate that this 1.05/1.07 area should prove a base for EUR/USD this summer," Turner mentions.
He substantiates this by pointing out that the current conditions are not nearly as severe as those that pushed the EUR/USD much lower in the same period last year.