EUR/USD – Stable Ahead Of Key US Data

 | Aug 15, 2014 06:20AM ET

The euro is firm on Friday, as the pair trades quietly in the high-1.33 range. On the release front, there are no Eurozone events as we wrap up the week.  In the US, it's a busy day, led by two key events on the calendar - PPI and UoM Consumer Sentiment. The markets are bracing for a soft PPI, while Consumer Sentiment is expected to post another strong reading.

It was a busy week in the Eurozone, with plenty of growth and inflation data for the markets to analyze and absorb. Despite broad interest rate cuts by the ECB in June, the Eurozone continues to limp along, including Germany, the region's locomotive. Economic growth remains in the doldrums, as underscored by Thursday's releases. French Preliminary GDP remained flat at 0.0%, unchanged from a month earlier. German Preliminary GDP slipped to -0.2%, the first contraction in the German economy since Q4 of 2012. Eurozone Flash GDP also weakened to -0.2%, down from 0.0% in the previous release. All three GDP releases missed their estimates, and the weak numbers could push the euro even lower.

On the inflation front, the news is not good, as deflation is a growing concern. On Thursday, Eurozone Final CPI dipped to 0.4%, down from 0.5% a month earlier. Eurozone Final Core CPI, a minor event, remained unchanged at 0.8%. Both indicators matched the forecast. On Wednesday, German inflation numbers remained weak, while French CPI posted its first decline since January.

With the Eurozone economy sputtering, it shouldn't come as a surprise that this week's confidence indicators pointed sharply downwards. German ZEW Economic Sentiment, a key release, took a tumble in July, falling to just 8.6 points, down from 27.1 points a month earlier. This was its lowest level since November 2012. Weakening confidence in the economy could lead to decreased spending and hiring and weigh on economic growth.

In the US, Unemployment Claims came in higher than expected. The indicator climbed to 311 thousand, marking a six-week high. The estimate stood at 307 thousand. Employment indicators are being closely scrutinized by analysts, as the strength of the labor market is one of the most important factors influencing the Federal Reserve regarding the timing of an interest rate hike. A rate increase is expected by mid-2015, but stronger economic data, especially on the employment front, could hasten a move by the Fed. Earlier in the week, JOLTS Job Openings hit its highest level in 13 years, although it too missed expectations.

Meanwhile, US retail sales data disappointed on Wednesday. Retail Sales dropped to a flat 0.0% last month, its weakest showing since January. The estimate stood at 0.2%. Core Retail Sales wasn't much better, posting a gain of 0.1%, down from 0.4% a month earlier. This was well short of the estimate of 0.4%. Retail sales are the primary gauge of consumer spending, and July's weak numbers points to a slow start to the third quarter. Although unemployment levels have dropped, this has not translated into stronger consumer spending, a key component of economic growth.

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