The euro is trading near 1.1450 after touching 1.1480, its strongest level since June 17, following the release of better-than-expected Eurozone Q2 growth data. The Eurozone’s GDP grew 0.4% quarter on quarter, beating the forecast of 0.2%, with Spain leading the major economies with 0.7% growth.
The Eurozone’s Q2 GDP growth of 0.4% is a significant improvement from the forecast. German July CPI rose to 2.8% from 2.3%, and Spanish inflation hit 3.5%, the highest since May 2024.
The euro’s rally on Thursday was driven by the better-than-expected growth and inflation data. The euro is now trading near its strongest level since June 17.
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The Federal Reserve’s decision to hold rates on Wednesday has also given the market a clear signal that the bank is watching the growth and inflation data closely. The Fed’s chair has stated that if inflation remains high, higher rates could become an appropriate response.
The technical structure of the euro is unusually well-defined, with resistance at 1.1480 and support at 1.1355. The euro has tested the resistance level twice this week and has failed to close above it. A convincing break through the 1.1480 level and the 50-day simple moving average could open up the 1.1500 level as the next reference.
Beyond that, the longer-term downtrend running off the January high sits just above 1.1550, with the 100-day simple moving average located nearby. The euro’s movement will likely be influenced by its ability to break through these levels.
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This means the market has removed a near-term hike while demanding materially more compensation for long-run inflation risk. The practical implication for the forecast is that the euro’s policy-convergence case has to overcome a carry disadvantage. Month-end flows and the dollar’s strong long-end yields are also expected to influence the euro’s movement.
Traders are reminded that the oil prices are currently a better leading indicator for the euro than either central bank’s rhetoric. Watching crude and the Hormuz threat assessment more closely than the ECB speaker calendar is important for predicting the euro’s movement. The energy market is closely tied to the euro’s movement.
Higher oil prices push both central banks toward tightening, which leaves the differential roughly unchanged while raising volatility on both legs. Lower oil prices ease both, with the same neutral net effect. The asymmetry only appears at the extremes, with a genuine supply disruption through Hormuz hitting the euro area harder than the United States.
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