Today’s focus is on the preliminary July PMI releases, especially given the recent shift in market risk sentiment, motivated by concerns surrounding a slow economic recovery.
Investor optimism would probably return if forecasts point towards stability in the US economy and Eurozone data also shows improvements – even though the ECB did not provide additional relief surrounding rates and QE in yesterday’s meeting.
The ECB seemed to intensify its dovish stance based on a strategic revision of the inflation target, possibly paving the way for a chance to remain accommodative – and pointing out that interest rates might stay at actual levels or lower until inflation reaches its 2% target.
Since the ECB estimates the inflation target could be reached by mid-2022, there doesn’t seem to be any rush to raise rates. The same could be seen with the bond purchase program, expected to maintain an accelerated pace of €20 million/week until September.
Future growth and inflation forecast updates could allow the ECB to create a better plan for the upcoming period, but the actual dovish stance led the German Bund yield to lose three basis points (bps) down to -0.43%.
After a high volatility rebound, the Euro resumed its downward movement, trading again near the 1.1750 area.
EUR/USD is trading near the relevant support located at 1.1710, reached in March 2021. From a technical analysis point of view, this level could activate a double top with a significant downward projection.
The same dovish tone of the European Central Bank has helped European indices recover some of this week’s lost territory – a week that began with a high risk aversion and produced an even higher level of market volatility.
The DAX regains its upward momentum and seems to approach a significant resistance level located around 15,800, a level touched on several occasions since June 2021. Another breakthrough would mark new all-time highs, supporting an apparent significant bullish moment. Improvement in PMI data already published for Europe and Germany – in which both manufacturing and services have exceeded forecasts – could become a positive factor for the performance of this index, eliminating doubts about the pace of economic recovery.
Sources: Bloomberg.com, reuters.com