Retest chance 1.1100 – ENG

French CPI surprised yesterday, but the global investor community was quick to agree that this was due to a short-term boost in services from the Olympics, which translated into a likely spurious boost in Eurozone surveys. In contrast, the news from Germany was rather gloomy as both manufacturing and services slowed more than expected and the composite index fell further to 48.5, notes Francesco Pesole, FX strategist at ING.

EUR/USD will drop below 1.1100 in the short term

“We have repeatedly stressed that this does not matter much for the euro as long as inflation and wages prevent big cuts from the ECB. The Bank’s own measure of negotiated wages slowed from 4.7% to 3.6% in Q2, but swap rates and the euro didn’t really react to the announcement as German wages data released earlier this week showed a much more worrying picture and there is a strong picture. the suspicion that the decline in negotiated wages in the euro area could be due to unique factors.”

“Incidentally, the PMI report showed that German producer tax inflation was the highest since February. Markets remain comfortable pricing in just under a cut for each ECB meeting until the end of the year (69bp in total), and things may not change until the next batch of key data moves the needle again .”

“EUR/USD has room to move higher in the coming weeks, but investors could use a lackluster speech from Powell today to lock in some profit and ask the pair to retest the strength of 1.1100 support.” This morning’s ECB CPI expectations report is expected to show a marginal decline from 2.8% to 2.8% in the one-year gauge and may not move the market significantly.”