Euro pauses after strong start to week

The euro is drifting on Tuesday, after posting gains in the Monday session. EUR/USD is trading at 1.1742, up 0.03% on the day.

German GDP rebounds in Q2

Germany released second-quarter GDP on Tuesday, and the 1.6% gain (QoQ) surpassed the consensus of 1.5%. This was a strong rebound from GDP in Q1, which came in at -2.0%. This decline was a direct result of a resurgence of Covid, which caused a substantial decline in economic activity. The Q2 release is good news for the eurozone, as Germany is a bellwether for the bloc. Still, there is plenty of room for improvement, as German GDP is 3.3% lower than pre-Covid levels (Q4 2019).

PMI reports continue to show significant expansion in the German and eurozone manufacturing and services sectors. The July figures showed an easing in the rate of expansion, but investors were pleased with the numbers, as the euro started the week with considerable gains. At the same time, it’s important to keep an eye on upcoming Manufacturing PMIs so as to gauge the strength of the manufacturing sector. Both the German and eurozone releases were the lowest in six months, as prolonged material shortages have weighed on factory production output.

Germany’s business sector has been marked by strong optimism, as German Ifo Business Climate has been above the 100-level for the past two months. The August survey, which will be released later on Wednesday, is expected to come in at 100.2, down slightly from 100.8 beforehand.

Thursday marks the first day of the Jackson Hole symposium, which will be held in a virtual format due to concerns over Covid. As well, the ECB releases the Monetary Policy Meeting Accounts from the July meeting. Inflation has been rising in the eurozone, with CPI hitting 2.2% in July, its highest level in three years. ECB President Christine Lagarde has insisted that inflation is transient, but the markets might become more sceptical if inflation does not ease in the coming months.

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EUR/USD Technical

• With the euro flat on Tuesday, the support and resistance levels remain unchanged
• There are resistance lines at 1.1779 and 1.1859
• On the downside, we find support lines at 1.1642 and 1.1585

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