Euro Hits 22-Month High on Strong German Business Sentiment

Euro Hits 22-Month High on Strong German Business Sentiment
July 28, 2020


The eurodollar recorded a 22-month high against the greenback after the German Ifo Institute reported an upbeat business sentiment index for July. The lower-than-anticipated core durable goods orders growth for June, reported by the US Census Bureau, also aided the eurodollar’s uptrend. In the past 24 hours, the EUR/USD pair rallied from a low of 1.1640 to a high of 1.1760.

According to the European Central Bank (ECB), M3 money supply (change in the total quantity of domestic currency in circulation and deposited in banks) rose by 9.2% y-o-y in June, from 8.9% in the earlier month, but lower than the 9.5% increase anticipated by economists.  Likewise, the yearly growth rate of narrower money supply (M1), consisting of currency in circulation and overnight deposits, inched a notch upwards to 12.6% in June, from 12.5% in the prior month. Also, adjusted loans to households were 3% y-o-y in June, unaltered from the earlier month. Adjusted loans to non-financial institutions declined to 7.1% y-o-y in June, from 7.3% in May.

Short-term deposits, excluding overnight deposits (M2-M1), grew 0.7% y-o-y in June, reflecting no change from May. Marketable instruments (M3-M2) rose to 10.1% y-o-y in June, from 5.7% in the earlier month.

While narrower money supply contributed 8.5%, short-term deposits, excluding overnight deposits (M2-M1), contributed 0.2%, and marketable instruments (M3-M2) contributed 0.5%.

Notably, credit to the private sector contributed 5.1% (versus 5.3% in May), while credit to the general government contributed 5% (an increase from 3.6%). Aggregate credit to the Eurozone residents rose to 7% in June, from 6.2% in May.

The ECB also stated that private loans increased 3% y-o-y in June, unchanged from the prior month, but lower than economists’ expectations for a 3.2% growth.

In Germany, the Ifo Institute has stated that the business climate index rose to 90.50 in July, from 86.30 in the earlier month and higher than the Consensus estimate of 89.20. The data published by the Munich based institution reflects the third consecutive month of increase in economic activity after a majority of COVID-19 prohibitions were relaxed.

Commenting on the increase in business climate index, Ifo head Clemens Fuest said, “The German economy is recovering step by step.”

In the US, according to Census Bureau, durable goods orders increased 7.3% m-o-m in June, following a 15.7% increase in the earlier month. Economists had anticipated the durable goods orders to increase by 7%. Excluding transportation, core durable goods orders increased 3.3% m-o-m in June, from 3.7% growth in May, but missed economists’ expectations for a reading of 3.5%.

In its media release, Census Bureau has stated that “Excluding transportation, new orders increased 3.3%. Excluding defense, new orders increased 9.2%. Transportation equipment, also up two consecutive months, led the increase, $9.2 billion or 20.0% to $55.3 billion.”

The bullish German Ifo business sentiment index data is expected to keep the EUR/USD pair range-bound with slight bullish bias in the short-term.

The historical price chart indicates that the EUR/USD pair has received support at 1.0845. The next resistance is anticipated only near 1.1905. Additionally, the stochastic oscillator is also in the bullish region. Therefore, we are anticipating the currency pair to remain in an uptrend in the days ahead.

USD - technical analysis - 28th July 2020

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.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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