EU consumer confidence readings collapse to record lows; EUR/GBP

The German GfK Consumer Confidence for August was weaker than expected with a reading of -30.6 vs and expectation of -28.9 and a lower revised reading to -27.7. The headline print was a new record low.  In addition, the French Consumer Confidence for July was 80 vs an expectation of 80 and a prior reading of 82.  This was the lowest reading since June 2013.  Also, the Italian consumer confidence for July was 94.8 vs an expectation of 98.6 and a prior reading of 98.3.  This was the lowest reading since the height of the pandemic in May 2020.  The EU Consumer Confidence flash reading for July, released on July 20^th, was -27 vs an expectation of -24.9 and a previous reading of -23.8. Like Germany’s GfK, this was also a record low.  The final July reading is due out tomorrow. 

What are economic indicators?

There main reasons given for the sharp deterioration in confidence were related primary to the Russian invasion of Ukraine.  The first was due to fears of low supply of natural gas.  The second was fears of a recession as the war sparked inflation, specifically in energy and good.  In addition, Italian was also worried about political uncertainty.

The ECB recently hiked rates by 50bps to 0.00%, despite falling consumer confidence levels and lower PMI readings.  However, inflation has been red hot and the ECB had to do something to try and slow it down.  The flash CPI is due out on Friday, with expectations of 8.6% YoY vs 8.6% YoY previously. Could we have hit peak inflation?

What is inflation?

EUR/GBP broke above the channel the pair has been in since April 2021 on May 14^th, near 0.8480 and went on to make a local high at 0.8729 on June 15^th.  The pair has been pulling back since and is currently sitting on key support at previous lows, the top downward sloping line from the long-term channel, and the 61.8% Fibonacci retracement level from the lows of March 7^th to the highs of June 15^th near 0.8400. If EUR/GBP breaks through the support level, the next level horizontal support is near 0.8367, then additional horizontal support near 0.8250.  Below there, price can fall to the lows of March 7^th at 0.8203.  However, if 0.8400 holds and EUR/GBP bounces, the first level of horizontal resistance is at 0.8489, then again at 0.8585.  Above there, price can move to the highs of July 22^nd at 0.8679.

Source: Tradingview, Stone X

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The Euro has been on the move lower as of late.  The increased inflation and fears of low supply of natural gas, combined with risk of a recession, are causing consumer sentiment in the Eurozone to fall to record lows. EUR/GBP is one of the currency pairs taking the brunt of the falling Euro.  Will it continue lower?  0.8400 is a key level to watch to find out!

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