Euro dips on soft confidence data

• Eurozone ZEW Economic Sentiment worsens
• German ZEW Economic Sentiment improves but remains negative
• ECB rate decision up in the air and could go to the wire

The euro started the week higher but has reversed directions on Tuesday and pared most of those gains. In the North American session, EUR/USD is trading at 1.0709, down 0.38%.

German and eurozone confidence data indicate pessimism

There hasn’t been much to cheer about with regard to German and eurozone data lately, so it’s no surprise that the ZEW Economic Sentiment indexes remain stuck in negative territory. The eurozone ZEW declined to -8.9 in September from -5.5 in August and missed the consensus estimate of -6.2. The news was a bit better in Germany, which improved from -12.3 to -11.4, above the estimate of -15. The outlook is quite gloomy, with inflation relatively high and the ECB contemplating further rate hikes.

The ECB meets on Thursday and it remains unclear what Lagarde & Co. will decide. The markets are split, with a rate hike priced at 45%, which would raise the benchmark cash rate to an even 4.0%. The central bank has been aggressively raising rates, with no pauses in the current tightening cycle. Still, inflation has proven stickier than expected and is currently at 5.3%, nowhere near the ECB’s 2% target. Germany is grappling with an inflation level of 6.2%.

The slowdown in the German and eurozone economies is a strong factor in favour of the ECB taking a pause, as further rate hikes could trigger a recession. ECB hawks argue that inflation has to be contained as priority number one, while the doves counter that weaker growth means inflation will continue to fall on its own and a pause would provide some relief to businesses and households. ECB President Lagarde has a difficult rate decision on her hands and the live decision could mean some volatility for the euro after the rate announcement.

.

EUR/USD Technical

• EUR/USD is testing support at 1.0732. Below, there is support at 1.0654
• There is resistance at 1.0777 and 1.0855

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.