Euro retreats below 1.1630 following the release of German Trade Balance data

The Euro (EUR) is practically flat against the US Dollar (USD) on Tuesday, after giving back previous gains, following the release of German Trade Balance data. The US Dollar remains weak ahead of Friday's inflation report, which keeps the EUR/USD pair steady above 1.1600, with the top of last week's trading range, in the 1.1640 area, at a short distance.

German Trade Balance data released earlier on Tuesday has shown a EUR 21.3 billion surplus in July, beating expectations of a more moderate widening to EUR 16 billion, from the EUR 15.4 billion surplus reported in June. German exports, however, fell 0.8% in July, below the 0% market consensus, although a sharper drop in imports, which fell 5.7%, largely reversing June's 4.5% increase, offset the decline in exports.

Eurozone figures released on Monday were mixed, with an unexpected decline in German Industrial Production offsetting the impact of an upward revision of the second quarter’s Gross Domestic Product. These figures do not alter the view that the European Central Bank will hike interest rates by a quarter point at its monetary policy meeting later this week.

Tensions in the Middle East escalate further

Geopolitical tensions, on the other hand, are acting as headwinds for Euro rallies this week. Iran threatened on Monday with attacks on energy infrastructure in Gulf countries, including US Oil and Gas sites, in case of new attacks on its assets. 

These comments push back hopes of a swift resolution of the conflict even further, while the Strait of Hormuz, the waterway transporting about 20% of global Crude supply before the war, remains closed. Against this background, Oil prices have continued to appreciate, with Brent Crude trading above $96 per barrel, which poses a heavy burden for the Eurozone’s economic growth.

In the US, the latest US Nonfarm Payrolls (NFP) provided some support for the US Dollar, but according to OCBC "not sufficient on its own to drive a sustained leg higher." Jobs data "reinforces the resilience of the US economy and should keep the risk of Fed tightening alive, which in turn may restrain USD downside," although OCBC experts observe that markets will "require firmer inflation evidence before pricing a Sept hike with greater conviction."

In this context, they assess that "focus therefore shifts to this week’s CPI, where an upside surprise could provide the catalyst for renewed USD strength, while a softer print would likely keep price action more two-way."