Going into the weekend the EUR/USD exchange rate climbed to a fortnightly best of 1.1343, spurred out of a slump as the finalised figures for the August German Consumer Price Index showed no change in spite of recent market turmoil. However, the greater impact on movement was the softening of the ‘Greenback’ as prompted by a substantial weakening on the University of Michigan Confidence Index, which declined significantly more than forecast to go from 91.9 to 85.7. This additional shortfall on domestic US data increased the uncertainty with which pundits have been betting on a September rate hike from the Fed, with the local economy exhibiting mixed signs of recovery in the wake of continued concerns with China and the global slowdown.
Monday saw the single currency benefit from a surprise increase in Eurozone Industrial Production in July, which rose from 1.5% to 1.9% in defiance of expectations for a marked decline in output. While this served to allay fears over the extent to which recent market turmoil had impacted the recovery and productivity of the currency union, the resultant rally was not especially long-lived. With the Shanghai index having resumed falls, clocking its worst day of trading in a fortnight, the rest of the global markets were dragged down due to a lack of any other major data releases through the rest of the day. Although the Dow Jones was equally weak, the continued speculation ahead of Thursday’s Fed Rate Decision helped push the EUR/USD conversion rate onto a downtrend.
In part the relatively muted recent performance of the Euro can be attributed to the uncertainty that still surrounds the result of the upcoming Greek general election. Polls continue to indicate that former Prime Minister Alexis Tsipras will not be returning to power with the majority which he had apparently envisioned when triggering these snap elections in August, as no one party appears to be poised for a conclusive victory. With the threat of a Grexit once more on the table and the progress towards the Hellenic nation’s first bailout conditional creditor review in October seemingly limited some substantial worries are returning to weigh on the common currency.
Today’s ZEW Economic Sentiment Survey has compounded the weakness of the EUR/USD exchange rate, as the latest index fell beyond forecasts to clock in at an unenthusiastic 12.1. Although the Current Situation Survey countered this increased pessimism with a healthy rise from 65.7 to 67.5, investor reaction was dovish. The suggestion that the Eurozone’s economic powerhouse may be facing difficulties has naturally seen a decline in the appeal of the single currency, setting the pairing on a renewed downtrend at 1.1308.
The US Advance Retail Sales for August may soften the ‘Greenback’ this afternoon if they demonstrate a decline equal to or greater than forecast. Poor showings on domestic Industrial and Manufacturing Production figures would also prove beneficial for the EUR/USD conversion rate, as dovish data stands to increase bets that the Fed will hold off on a rate hike on Thursday. However, with speculation likely to remain rife up until the announcement, the US Dollar may still make significant ground through the coming week, particularly as Euro sentiment may die back on increasing Greek worries.