EUR/USD: Clear signals, or neither fish nor fowl? – Commerzbank

Last week European Central Bank (ECB) President Christine Lagarde emphasized the data dependency of future interest rate decisions. Of course, inflation data comes first, Commerzbank FX strategist Antje Praefcke notes.

Markets need clear signals about rate cuts

“Some Council members expressing concern about the growth outlook in recent weeks. Next week, Tuesday, there will be a look in the rear-view mirror with the GDP data for the second quarter. More important, however, is a look into the future. After all, the burden on the economy caused by higher interest rates should ease noticeably and sentiment indicators improved at the beginning of the year.

“However, the Purchasing Managers' Index for June suffered a severe setback. This is why the Purchasing Managers' Index for July is also likely to be scrutinized today for signs of a recovery and, if so, how long this will take. If it falls again, this would fuel doubts about a rapid recovery and weigh on the Euro. If the indicators rise again, this would suggest that the declines in June were an outlier and that the recovery is indeed imminent.”

“In this case, the Euro should be able to benefit. However, it is also quite possible that the indicators are neither fish nor fowl and do not provide any clear indications. In this case, the market would be left clueless for the time being and would be all the more eager to pounce on the upcoming data (such as July inflation figures next week).”