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Sentiment Worsens Citing Higher Energy Costs, Reduced Profitability
Energy Costs to Eat into Bottom Line
- Persistent high inflation and expected rising energy costs could impact private consumption gains
Already weak economic growth will fall further - However, expectations for the financial sector are improving amid a reported rise in short-term interest rates.
- The ECB is almost certain to raise interest rates in September.
Given Germany’s economic importance to the entire Eurozone, market participants (traders, analysts, etc.) pay close attention to Germany’s ZEW data. The July data was below 2020 lows – pointing to a gloomy economic outlook for the next six months.
ZEW Economic Sentiment (Germany)
The ZEW Economic Forecast is a summary of 6-month economic forecasts by institutional investors and analysts and is considered a reliable leading indicator. This data is important in the industry because forecasts of future financial performance are made by highly informed individuals based on their work.
Immediate Euro Response
The EUR/USD chart showed an initial downtrend in line with the general trend, but price action quickly returned to pre-data levels. As the data continues to weigh on already weak fundamentals, I expect the euro to weaken further, especially after last week’s lower CPI reading prompted the dollar to sell off in the so-called “Fed Pivot” narrativa
EUR/USD 1-Minute Chart
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