Euro gives away gains as Eurozone Industrial Production disappoints

EUR/USD gives away previous daily gains and retreats to the 1.1425 area.
Eurozone Industrial Production contracted against expectations in June.
The US Dollar had been on its back foot in previous sessions, weighed down by softer-than-expected US inflation figures.

Guillermo Alcala FXStreet

The Euro (EUR) has given away previous gains against the US Dollar (USD) on Wednesday, with the EUR/USD pair retreating to levels just above 1.1420 from session highs near 1.1450. A negative surprise on the Eurozone's Industrial Production figures has hit the Euro, which had been posting moderate gains, favoured by a mild US Dollar weakness.

Data released by Eurostat revealed that Eurozone Industrial Production contracted 0.2% in May, against market expectations of a 0.2% rise, and following an upwardly revised 0.3% gain in April. Year-on-year, factory output in the countries sharing the Euro dropped 1.2%, following a 0.4% gain in April, and more than twice the 0.5% decline anticipated by the market consensus.

US CPI data cools Fed tightening hopes

The US Dollar took a hit on Tuesday as June’s US Consumer Price Index (CPI) report revealed inflation slowed to a 3.5% year-on-year pace, down from 4.2% in May and well below the consensus of 3.8%. Monthly inflation contracted 0.4%, its weakest reading in nearly six years.

These figures give the Federal Reserve (Fed) some margin to keep interest rates on hold at its July meeting and have prompted investors to dial down expectations of Fed rate hikes in the coming months. The CME FedWatch Tool shows a 60% chance of a hike in September, down from 75% before the CPI release.

Fed Chairman Kevin Warsh showed a distinct hawkish tone at its first congressional testimony, vowing a “resolute commitment to restore price stability” and defending the central bank’s independence from political pressures. His comments, however, failed to lift the US Dollar.

Meanwhile, the conflict in the Middle East continues to deteriorate. The US has closed the Strait of Hormuz for Iranian vessels, and US President Donald Trump threatened to target civilian infrastructure, like bridges and power plants. Tehran threatened to close other strategic energy routes. Market sentiment remains weak, with Oil prices pinned near monthly highs. All in all not the best scenario for a strong Euro recovery.

Economic Indicator

Industrial Production s.a. (MoM)

The Industrial Production index, released by Eurostat on a monthly basis, measures changes in the price-adjusted output of industry. It is a widely-followed indicator to gauge the strength in the Eurozone’s manufacturing sector. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

Economic Indicator

Industrial Production w.d.a. (YoY)

The Industrial Production is released by the Eurostat. It shows the volume of production of Industries such as factories and manufacturing. Up trend is regarded as inflationary which may anticipate interest rates to rise. Usually, if high industrial production growth comes out, this may generate a positive sentiment (or bullish) for the EUR, while low industrial production is seen as a negative sentiment (or bearish).

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USD/JPY consolidates below 158.50; looks to US CPI for fresh impetus

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Gold: Bears struggle to breach below $4,150

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