Euro extends its reversal below 1.1400 amid cooling Eurozone Inflation data

EUR/USD reverses previous weekly gains and returns below 1.1400.
Eurozone inflation cooled beyond expectations in June, easing pressure on the ECB to hike rates further.
ECB President Christine Lagarde and Fed Chairman Kevin Warsh are set to speak at a central bankers' meeting later on Wednesday.

Guillermo Alcala FXStreet

The Euro’s (EUR) mild recovery against the US Dollar (USD) seen earlier in the week has come to an end on Wednesday. The pair has returned to levels below 1.1400 during the European trading session, weighed by a significant slowdown in Eurozone inflation figures, shifting the focus back to the 13-month lows, at 1.1324 hit in June.

The pair is struggling amid a combination of soft Eurozone data and the revival of the narrative of US economic exceptionalism, as US macroeconomic figures keep showing a resilient economy and providing reasons for the Federal Reserve (Fed) to hike interest rates in the coming months.

Eurozone Inflation cools in June

Inflation figures from the Eurozone, released on Wednesday, have failed to support the Euro. June’s preliminary Harmonized Index of Consumer Prices (HICP) slowed down to a 2.8% year-on-year (Y-o-Y) growth, below the 3% market consensus and well below the 3.2% rate seen in May. Likewise, the core HICP has eased to a 2.4% Y-o-Y rate, down from May’s 2.6% reading.

These figures follow similar cooling trends in German and Italian consumer prices, shown by figures released on Tuesday. This new scenario suggests that the inflationary boost from the Middle East conflict might have peaked, which gives some leeway for the European Central Bank (ECB) to pause and wait for further insight into the impact of energy prices, before hiking interest rates further.

The cooling inflationary trends are likely to boost interest in ECB President Christine Lagarde’s speech at the central bankers’ meeting in Sintra, Portugal, due later on the day. Lagarde struck an unusually hawkish tone at the opening speech on Monday, and investors will be looking for dovish hints, following Wednesday’s inflation data.

Later on the day, the Federal Reserve’s new Chairman, Kevin Warsh, is also expected to take the stage at the summit, with investors looking for hints about the bank's monetary tightening calendar. Warsh, however, is more reluctant than his predecessor to disclose the bank's forward path and might tiptoe around the topic.

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

Economic Indicator

Core Harmonized Index of Consumer Prices (YoY)

The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

GBP/USD slides below 1.3250 after failing to break through 23.6% Fibo

The GBP/USD pair meets with a fresh supply during the Asian session on Wednesday and moves away from a nearly two-week high around the 1.3275 region, touched the previous day. Spot prices currently trade around the 1.3235 zone, down 0.20% for the day, as traders look to speeches from Bank of England Governor Andrew Bailey and Federal Reserve Chair Kevin Warsh for a fresh impetus.

EUR/USD keeps losses near 1.1400 after soft Eurozone inflation data

EUR/USD keeps the offered tone intact near 1.1400 in European trading on Wednesday, pressured by softer Euronze and German inflation readings and receding bets for aggressive tightening by the European Central Bank (ECB). Traders will take more cues from the US Manufacturing PMI due later in the day.

Gold stays in red below $4,000, awaits Warsh's speech

Gold remains under selling pressure below $4,000, in the red for the third straight day on Wednesday. The Iran uncertainty and Fed hike bets support the USD, weighing on the commodity. Traders now look to Fed Chair Warsh's speech and the US data for a fresh impetus.

ISM Manufacturing PMI expected to signal continued expansion in the US

Attention shifts to Wednesday’s release of the June ISM Manufacturing Purchasing Managers Index, one of the most closely followed indicators of activity in the US manufacturing sector and an important barometer of the broader economy. Markets expect the headline index to remain unchanged at 54.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The European Central Bank Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Federal Reserve, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.