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Super Tuesday for Eurozone to put common currency in focus

Today’s macro highlights:

  • EUR - Eurozone Unemployment (July)
  • EUR - Eurozone CPI (July)
  • EUR - Eurozone GDP (Q2)
  • USD - PCE Deflator (June)

Super Tuesday for Eurozone to put common currency in focus

There were few surprises in yesterday’s economic data and that slight undershoot in German inflation failed to quell enthusiasm for the common currency. We do however have a busy day ahead in the Eurozone with a series of high profile data releases all set to drop at the same time, making for a ‘Super Tuesday’ and volatility could well find itself exacerbated as a result of the thinner underlying volumes which are typical of the summer.

Eurozone unemployment is published at 10am BST and this is expected to continue nudging its way lower with 8.3% being forecast. This is a notable improvement over the 12% readings we saw around five years ago and is edging back towards the all-time lows of just over 7%, hit in the months before the credit crisis unfolded. The ECB would likely brush off even a modest uptick in the data if we were to see any disappointment today.

The Eurozone CPI reading, again due at 10am BST, will also be in focus. After yesterday’s shortfall in the German print, the market will be watching to see whether there’s another miss here. The problem with this is falling inflation suggests the ECB needs to be doing more to stimulate economic growth, but the current plan is for the bond buying scheme to be withdrawn by the end of the year and interest rates to start ticking higher in just over 12 months time. Anything that calls this well-communicated plan into doubt has the potential to see the Euro squeezed.

Rounding out numbers from the Eurozone will be the flash Q2 GDP reading, again due at 10am BST. The year-on-year figure is tipped to contract from 2.5% to just 2.2% and this has the potential to set alarm bells ringing if it is indeed the case. It will underline the idea that the Eurozone economy isn’t faring terribly well as the QE tapering process continues and again could heap pressure onto the common currency.

Jumping across the Atlantic, we also have a flurry of economic readings, although the PCE - personal consumption and expenditure - deflator stands out. This is the Federal Reserve’s preferred measure of inflation and the core figure is tipped to come out unchanged from last month at 2%. There is concern that import tariffs are fuelling inflation in the US and this is still something of an evolving situation, but anything that puts pay to the message could drive some dollar volatility.

The pair is making very modest gains from Friday’s recent lows, but this does seem to be a case of Dollar weakness rather than Pound strength. With no UK data set for release today, the trend may continue in the short term but it’s Friday’s Bank of England rate call that remains the focal point this week.

The pair is drifting higher, but today’s data dump does put the risk on the downside for the common currency.

Sterling appeared to sell-off against the Euro at every opportunity overnight, suggesting that political risk remains a major threat for the Pound. If the Eurozone data manages to impress universally today then GBP/EUR could stumble to fresh lows for the year.