Euro Holds Ground Ahead of ECB as US Dollar Flexes. Where to for EUR/USD?

Euro, EUR/USD, US Dollar, Treasury Yields, ECB, Knot, EU Inflation, Crude Oil – Talking Points

• The Euro held firm again today as the US Dollar pauses in its climb
• Australia and China missed estimates on their respective trade surpluses
• Market pricing of an ECB hike might be questioned. Would it boost EUR/USD?

Euro steadied again going into Thursday’s trading day but remains within a whisker of the 3-month low seen yesterday near 1.0700.

The US Dollar is generally stronger so far today after Treasury yields once again stepped up to loftier levels overnight. The benchmark 10-year note is near 4.30% after having traded at 4.06% a week ago.

The European Central Bank meets next week, and the market is only subscribing around a 33% probability of a 25 basis-point (bp) hike.

Yesterday, Governing Council member Klaas Knot said that he thought the market was underestimating the chance of a hike. He will be speaking again today alongside several other ECB representatives.

MARKET PRICING OF A 25 BP HIKE BY THE ECB

Source; Bloomberg and TastyTrade

Inflation remains stubbornly high in the Eurozone and market-priced long-term inflation has been inching up of late when looking at the German 10-year breakeven rate and the EUR 5Y/5Y inflation swap.

If the market continues to up the ante on inflation bets, the ECB might need to be more aggressive at some stage.

EU INFLATION AGAINST MARKET-PRICED INFLATION

Source; Bloomberg and TastyTrade

Elsewhere, APAC equities are a sea of red on Thursday and futures are pointing toward a tough cash session for European and North American bourses.

Hong Kong’s Hang Seng Index (HSI) dipped after Chinese trade data increased investor anxiety around the economic outlook there.

China’s trade balance for the month of August missed forecasts, coming in at USD 68.3 billion rather than the 73.9 billion anticipated.

Both exports and imports shrunk significantly, adding to concerns for activity domestically and abroad.

Australia’s trade surplus was also smaller than estimated, printing at AUD 8.04 billion for July, below forecasts of AUD 10 billion. The Aussie continues to languish near 10-month lows under 64 US cents.

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Crude oil has eased slightly today after another stellar rally yesterday on production cuts and depleting stockpiles. Live prices can be found here.

Spot gold is treading water around US$ 1,920 an ounce and volatility on the precious metal is at its lowest level since February 2020 as measured by the GVZ index.

After Eurozone GDP data, the US will see more job numbers hit the wires.

The full economic calendar can be viewed here.

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter