The euro declined against the greenback on Friday following the release of worse-than-anticipated Italian trade deficit data for April. The US capacity utilization and industrial production data also missed estimates. Nevertheless, the sharp Fed rate hike continues to keep the greenback bullish against the euro. Overall, the EUR/USD pair declined from a high of 1.0590 to a low of 1.0448.
According to the final data published by Eurostat, the Eurozone’s consumer price index (CPI) rose by 8.10% y-o-y in May, from 7.40% in the prior month. The initial estimates had pegged the CPI at 8.10%. Economists did not anticipate any change in the CPI.
In the same period last year, the Eurozone inflation rate was 2%. Energy recorded an increase of 3.80% in May. This was followed by food, alcohol, and tobacco, which posted a growth of 1.59%. Services grew by 1.46%, while non-energy industrial goods rose by 1.13%.
Excluding volatile goods such as food and energy, the final core consumer price index increased 3.80% y-o-y in May, following an increase of 3.50% in April. The reported figure was in line with economists’ expectations.
Energy prices surged 39.10% y-o-y in May. Also, food, alcohol, and tobacco prices jumped 7.50%. Services rose by 3.50%, while non-energy industrial goods increased 4.20%. As the inflation rate in the Eurozone remains higher than the ECB’s target level of 2%, the central bank is widely anticipated to increase the benchmark interest rate from July.
According to Italy’s statistical organization, Istat (Italian National Institute of Statistics), the country’s trade deficit widened to €3.67 billion in April, from €0.23 billion in March, and was higher than the €2.26 billion deficit anticipated by economists.
Notably, Italy had a trade surplus of €5.90 billion in April 2021. Compared with last year, imports jumped 42.40% to €53.80 billion in April, led by a 197.40% rise in energy purchases. Intermediate goods imports grew by 31.20%. Also, consumer goods imports rose by 29.80%.
In the meantime, exports grew by only 14.90% y-o-y to €50.10 billion. The increase was led by a 135% rise in energy exports. Also, intermediate goods recorded an increase of 18.10%. Consumer goods posted a rise of 17.70%.
Within the EU, Italy posted a trade deficit of €955 million in April 2022, compared with a surplus of €1 billion in April 2021. Imports grew by 27.70%, while exports rose by 17.70%.
In the US, the Federal Reserve stated that capacity utilization rates inched higher to 79% in May, from 78.90% in April, but missed the capacity utilization rate of 79.20% anticipated by economists.
Specifically, the manufacturing capacity utilization rate was 79.10%, while the mining operating rate was 81.50%. Utilities’ capacity utilization rate was 76.40%.
The Federal Reserve also stated that industrial production grew by 0.20% m-o-m in May, following an increase of 1.40% in April, and missed the 0.40% rise anticipated by economists.
Manufacturing output fell by 0.10% m-o-m in May, following a rise of 0.80% in April. Economists had forecast factory production to rise by 0.30%. Output surged 4.80% y-o-y in May 2021.
The unexpected drop in factory production followed three months of expansion, averaging about 1%. Non-durable manufacturing production inched higher by 1%, aided by a rise in petroleum and coal products, which negated drops in food, beverage, and tobacco products, as well as paper and printing.
The output of long-lasting goods declined 0.2%, dragged down by a decrease in wood products and machinery. Production at auto plants increased 0.70% m-o-m in May, following a rise of 3.30% in April.
Mining production rose by 1.30% in May, following a rise of 1.10% in the earlier month. Utilities’ output jumped 1%, following a surge of 5.50% in the earlier month. The robust gains in mining and utilities negated the decline in manufacturing, boosting aggregate industrial production by 0.20%. Industrial output surged 1.40% in April.
The weak economic data from both Europe and the US and the hawkish Fed moves are expected to keep the EUR/USD pair range-bound in the short term.
The historical price chart indicates that the EUR/USD pair is rising after testing the support at 1.0350. The next resistance is anticipated only near 1.0750. Additionally, the currency pair is trading above its 50-day moving average while the momentum indicator is rising. Therefore, we are anticipating the currency pair to remain in an uptrend in the short term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
