Euro calm in thin holiday trade

The euro is trading quietly in European trade at 1.0433. With US markets closed for the Fourth of July holiday, we can expect a quiet session today.

US markets are closed today, putting the focus on eurozone data, which was a mixed bag. In May, Germany posted a rare Trade Balance deficit, at -1.0 billion euros. Exports were down 0.5% MoM, contributing to the deficit. The eurozone Sentix Investor Confidence index slowed to -26.4 in May, worse than the forecast of -19.9 and below the April reading of -15.8. The silver lining was the Producers Price Index for May, which slowed to 0.7% MoM, down from 1.2% in April and below the estimate of 1.0%.

Eurozone inflation higher than expected

Eurozone inflation hit a record 8.6% YoY in June, up from 8.1% in April and above the 8.4% estimate. France and Spain experienced higher inflation in June. German inflation declined, but that was considered an anomaly due to new government energy subsidies.

With inflation continuing to accelerate and the ECB revising downwards its growth forecast, the spectre of stagflation in the bloc remains very real. The ECB is finally on the verge of raising rates, behind other major banks that are well into their rate-tightening cycle. ECB President Lagarde has switched gears after dismissing surging inflation as being temporary. Lagarde is sounding more hawkish about fighting inflation, but the promise of higher rates is raising concerns that the economic slowdown in the eurozone could turn into a recession. The war in Ukraine shows no signs of ending anytime soon, and the surge in energy and food prices could push the bloc into a deep slowdown.

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EUR/USD Technical

• EUR/USD has support at 1.0324 and 1.0221
•  There is resistance at 1.0470 and 1.0573

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