Euro: Recovery signals offer limited upside against US Dollar – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that Eurozone leading indicators, including Germany’s IFO, Purchasing Managers’ Index (PMI) and ZEW, point to improving activity. With inflation still above target, Haddad says the data reinforce the case for the European Central Bank (ECB) to resume raising rates in September, but argues that already-priced tightening and nearby technical resistance may limit further Euro upside.

Eurozone data support cautious Euro gains

"Leading indicators point to a recovery in Eurozone economic activity. Germany’s IFO business climate index improved to 86.6 in July vs. 85.7 in June entirely driven by expectations. That echoes the increases seen in the Eurozone July PMI and ZEW index."

"Bottom line, a recovery in Eurozone economic activity and above target inflation reinforces the case for the ECB to resume raising rates in September."

"That’s unlikely to offer EUR much upside traction as the swaps curve already price in 90% odds of a 25bps rate hike at the September 10 meeting."

"The next key resistance for EUR/USD is at 1.1483, the July 15 high, while support is at 1.1335, the June 24 low."