The Euro dipped waffling briefly around the 1.1300 level against the U.S. dollar during the Thursday European trading session. This movement comes after the release of new data showing a general contraction in business activity. Leading the decline was German private sector in May. As such, the contraction has done little to curb the Euro’s ability to make gains in a negative economic environment.
On Thursday, EUR/USD continued to bounce around its range that’s firmly set around 1.1300. We expected the price action on the Euro to be very much affected by the recent German economic data, analysts remarked. The data released last week painted a grim picture of growing stagnation in the private sector’s business activity. This decline created a panic about the state of the German economy as a whole.
The ongoing contraction of business activity is especially significant as it’s a bellwether of greater economic headwinds hitting the region. Reducing consumer demand from retail to energy costs combined with increased inflationary pressure are significant factors affecting this great downturn. These factors together conspired to limit the potential for economic development opportunities for all types of businesses. Consequently, the base case for the Euro is still quite a bearish one.
Market participants are understandably reading the tea leaves on these moves. EU officials understand that these events will heavily influence the European Central Bank’s (ECB) monetary policy choices. Analysts suggest that sustained weakness in economic indicators could result in a more cautious approach from the ECB regarding interest rate hikes, thereby impacting the Euro’s value.
Through all these difficulties in the past few days’ waters EUR/USD has survived to trade roughly unchanged from before this turmoil below 1.1300. The currency pair would demonstrate much strength by defending this milestone level. However, the current economic conditions still pose serious risks. Investors are making hard choices as they look to invest prudently in the face of this fraught economic landscape.