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Euro climbs on upbeat sentiment data

 The euro rose on Tuesday, hovering just below a two-and-a-half-month high set the day before. The ZEW economic research institute reported that its monthly investor sentiment survey increased to 84.4 points from 70.7 the month early. It was last at a higher level in February of 2000. A Reuters poll predicted a rise to 72.0 percent. The euro is currently the best-performing currency in the G10, owing to upbeat German ZEW Economic Sentiment results. After dropping suddenly in April, German investor sentiment soared in May.

 

EURO

The euro rose 0.35 percent to $1.2170, remaining just below a high of $1.2179 set on Monday on February 26. From a five-month low at the end of March, it has gained 4%. Widespread dollar weakness aided the euro’s gains as investors awaited comments on US policymakers’ thinking ahead of Wednesday’s inflation results. Though soaring commodity prices have increased fears of higher inflation in the coming months, a weak jobs report last week triggered a widespread selloff in the greenback. A rally in commodity prices boosted resource-oriented currencies like the Canadian dollar and the Australian dollar. “The major question is whether the Fed will continue to be dovish,” said Moh Siong Sim, a currency analyst at the Bank of Singapore. “What happens to the Fed if inflation increases faster than the Fed expects?”

Year-on-year inflation in the United States is expected to reach 3.6 percent in April, boosted by the base effect of a pandemic year contraction.

On Monday, investors pushed up five-year breakevens – a measure of inflation expectations – to a decade high of 2.717 percent, indicating the divide between investors and policymakers over whether that level of price growth will continue.

 

Currency

At least until tomorrow’s release of German and US CPI results, inflation fears will be front and center. US core consumer prices are expected to increase 2.3 percent year over year, up from 1.6 percent in April. A slightly higher reading would almost certainly send tech stocks tumbling once more.

The Australian dollar (0.7842) is stable and can rise to the resistance between 0.80-0.79. 0.76-0.8 is a short sideways range.

At higher levels, the EURJPY (132.23) has remained stable, and although above 132, there is potential for a further rise to 135 in the medium term. Although above 132, the outlook is bullish.

The dollar-yen exchange rate (108.87) is steady, close to yesterday’s levels. If the price is above 108, we can anticipate a ranged movement between 108 and 110.

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