- Revised German consumer inflation for June should equal the preliminary estimate
- The consumer prices data could even deliver an upside surprise
- US jobless claims to edge down and reaffirm an upbeat outlook for employment
- The Eurozone’s economic rebound continues to fuel a rally in EUR/USD
Revised data on German inflation for June is the main event for Eurozone economic releases today. We’ll also see the weekly update on US initial jobless claims. Meantime, traders will be watching EUR/USD after a rally this year that’s lifted the single currency to a 14-month high against the US dollar.
Germany: Consumer Price Index (0600 GMT) Today’s revised June data for inflation is expected to reaffirm that the consumer price index increased 1.6% from the year-earlier level, slightly above May's 1.5% rise.
Inflation data this year has delivered several stronger-than-expected reports. The market will be watching to see if today’s results provide another upside surprise.
The crowd, however, is expecting that the preliminary estimate of annual inflation in June will hold at 1.6%, based on Econoday.com’s consensus forecast. That’s roughly double the pace in last year’s fourth quarter, although a 1.6% increase is below the 2.2% pace reached earlier in 2017.
Yesterday’s report on wholesale prices suggests that pricing pressure will remain relatively tame in today’s CPI data. Destatis on Wednesday advised that wholesale inflation in Germany edged down to a 2.5% annual pace in June, well below May’s 3.1% advance.
That alone doesn’t mean that CPI won’t deliver an upside surprise today, but the data published to date suggests that the recent acceleration in pricing pressure for consumers will remain relatively subdued in the revised mid-year update. If so, the news will provide the European Central Bank with another data point to cite for keeping monetary policy on hold at next week’s announcement on interest rates.
US: Initial Jobless Claims (1230 GMT): Federal Open Market Committee chair Janet Yellen yesterday downplayed the role of subdued inflation as a factor that could delay future interest-rate hikes. Labelling the weaker pricing pressure as “transitory”, Yellen implied that the economy’s ongoing moderate growth rate would keep plans for monetary tightening on track.
“Looking ahead, my colleagues on the FOMC and I expect that, with further gradual adjustments in the stance of monetary policy, the economy will continue to expand at a moderate pace over the next couple of years, with the job market strengthening somewhat further and inflation rising to 2%,” she said in prepared remarks delivered to Congress.
Today’s weekly report on new filings for unemployment benefits is expected to provide fresh support for Yellen’s upbeat outlook on economic activity, the labour market in particular. Economists are looking for a small decline in jobless claims to a seasonally adjusted 246,000, which is close to a multi-decade low.
As leading indicators go, claims have been sending a strong bullish signal with respect to payrolls and today’s data is expected to stick to that narrative. If so, Yellen will have a new data point to quote for upbeat macro expectations in today’s second day testimony in the US Senate.
EUR/USD: The European Central Bank has offered minimal context about how or when it will begin to wind down its bond-buying programme. But the run of firmer economic data suggests that the ECB will soon be forced to reveal its plans.
Yesterday’s May report on industrial production is the latest sign that a change in policy may soon be warranted. The market was expecting a 0.3% monthly rise; the actual number was a dramatically stronger 1.3% surge. The year-over-year rate also jumped sharply, posting a 4.0% gain – far above the 1.2% consensus forecast.
The big-picture outlook for Eurozone second-quarter GDP growth looks encouraging, too. Next month’s official release is expected to show a solid 0.7% increase in Q2, according to the Eurozone Composite PMI. If the estimate is right, economic activity will accelerate for the fourth straight quarter and post the strongest gain in more than two years.
The case for ultra-loose monetary policy, in short, is fading quickly. The euro has been pricing in the evolving state of economic affairs. EUR/USD has climbed sharply higher through much of 2017, trading above $1.145 earlier this week for the first time in over a year.
Weak economic data would derail the euro’s rally. But recent history suggests that the Eurozone recovery will endure, which suggests that EUR/USD still has room to run. The euro “will continue to reign supreme in the absence of any evidence that the [European Central Bank] is worrying about the impact of the FX appreciation on the economic outlook,” an analyst at Crédit Agricole wrote.
Disclosure: Originally published at Saxo Bank TradingFloor.com