Analysis of the euro area economy Sunday, June 27
Eurozone inflation data will determine the EURUSD trend.
Next week, the main focus of euro traders will be on inflation data for Germany and the euro area. Eurozone inflation data are released after PMI data. Last week, the eurozone PMI data were much better than market forecasts.
In June, the German PMI and the euro area as a whole were higher than market forecasts. The IFO business climate change index was also good. Under normal circumstances, the release of such economic data could strengthen market interest rate expectations and support the EURUSD. But the European Central Bank has made it clear that rapid inflation is temporary and therefore there is no need to raise interest rates or reduce bond purchases. This means that if the eurozone inflation data is weak this week, even the most optimistic market investor will no longer expect interest rates to rise, and the euro will weaken as a result.