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FX.co ★ Euro remained afloat amid good data in the Euro area. Meanwhile, pound soared on strong consumer sentiment report.

Euro remained afloat amid good data in the Euro area. Meanwhile, pound soared on strong consumer sentiment report.

Euro managed to remain afloat last Friday, thanks to good data on activity in the Euro area. However, this did not lead to a price increase, as the overall economic picture is rather mixed. In addition, similar data from the US did not help, so EUR / USD remained in a horizontal channel.

According to the report released last Friday, the EU private sector grew at the fastest pace in the last 20 years, mainly due to the lifting of quarantine restrictions. Composite PMI rose to 60.6 in July, from 59.5 in June. Analysts expected the index to be 60.0 points. The largest growth was seen in the service sector, where activity has increased the most over the past 15 years. Meanwhile, there was a slight decline in the manufacturing sector, as growth there slowed to a four-month low amid weaker supplies.

To be more specific, service PMI hiked to 60.4 points, while manufacturing PMI fell to 62.6 points. New orders in both manufacturing and service sectors also increased to their highest level since May 2000. Leading the recovery was Germany, which posted the strongest monthly gain since the index was taken. But in France, growth fell to a three-month low, as business confidence was hit by growing concerns over the Delta strain of coronavirus. Such pushed sentiment to a five-month low.

Euro remained afloat amid good data in the Euro area. Meanwhile, pound soared on strong consumer sentiment report.

In fact, composite PMI in France slipped to 56.8 points in July, from 57.4 points in June. Analysts expected the index to reach 58.5 points.

As for Germany, composite PMI hit 62.5 in July, from 60.1 in June. Analysts expected the index to be 60.8 points.

ECB forecast

In another note, the European Central Bank said last Friday that the harmonized CPI in the Euro area will rise to 1.9% this year. Economic forecast for 2022 was also raised from 1.3% to 1.5%, while the forecast for 2023 was kept at 1.5%.

The central bank also said inflation will not go beyond 2.0% in the short-term, which puts pressure on risky assets. This is because it means that the ECB is unlikely to tighten monetary policy earlier than scheduled. As for long-term inflation, the ECB expects it to reach 1.8% by 2026.

With regards to core inflation, which excludes energy, food, alcohol and tobacco prices, the forecast for this year was revised from 1.1% to 1.2%, while the forecast for next year was raised to 1.3%. The forecast for 2023 was also changed to 1.5%. Interviewed respondents reaffirmed that they consider some of the factors behind the expected rise in inflation in 2021 to be temporary, but believe that underlying inflationary pressures will gradually rise as economic activity recovers.

As for GDP growth, the ECB projects it will hike from 4.2% to 4.7% this year, and then increase from 4.1% to 4.6% next year. Long-term growth expectations for 2026 was also up 1.4%.

In terms of unemployment, a decrease from 8.5% to 8.1% is expected by the end of this year, and the forecast for next year was lowered from 8.1% to 7.8%. The forecast for 2023 was also changed from 7.7% to 7.5%. All in all, the unemployment rate will remain quite high, but by 2026 it will decrease to 7.2%.

In the United States, there are some problems in the labor market, as only about 6% of respondents surveyed expect that labor shortage in the country will decrease by the end of 2021. Almost a third of the participants said that everything points to increased uncertainty , and the new strain of the Delta coronavirus is to blame. In fact, many companies disclosed that they continue to experience a shortage of workers, citing problems ranging from an insufficient number of candidates to a lack of qualified personnel.

Regarding inflation, interviewees noted that combined with persisting supply chain problems, inflationary pressures are likely to persist for the foreseeable future.

All this affected the movement of EUR / USD, which until now is trading horizontally. But today the pair could hike to 1.1785, 1.1810 and 1.1830 if bullish traders manage to push the quote above 1.1755. If not, the pair will drop to 1.1720 and 1.1680.

GBP

Pound soared last Friday, but did not manage to hit new local highs. Nevertheless, it still rose very sharply, thanks to strong consumer sentiment data in the UK.

According to GfK, consumer sentiment rose to -7 in July, from -9 in the previous month. This means that the index continued to improve for six consecutive months, which is very good news to the economy. Analysts had expected the index to reach -8.

Euro remained afloat amid good data in the Euro area. Meanwhile, pound soared on strong consumer sentiment report.

Retail sales also grew 0.5% month-over-month, thanks to the 4.2% increase in sales in grocery stores. Unfortunately, sales of non-food products fell by 1.7%.

Going back to pound, a lot depends on 1.3722 because going above it will result in a larger increase to 1.3820 and the 39th figure. But if the quote drops below the level, GBP / USD will plunge to 1.3670, 1.3630 and 1.3590.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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