EUR/USD Price Prediction – Flat Producer Price Report After

The euro is virtually stable against the US dollar

EUR/USD is practically stable after the release of the Eurozone producer price report. The report said eurozone producer prices rose 0.7% month-on-month in May, compared to analyst consensus of 1%. On an annual basis, producer prices in the Eurozone increased by 36.3%, while analysts expected a growth of 36.7%.

Although the eurozone producer price report was a bit better than expected, the inflation picture remains gloomy. Inflationary pressure remains strong, so the European Central Bank will have to raise the interest rate.

At the same time, it is unclear whether the ECB will be able to contain rising government bond yields from weaker EU members like Italy without pushing German yields to new highs. .

As a reminder, the current plan is use the proceeds of bonds from Germany, France and the Netherlands to buy bonds from Italy, Spain, Portugal and Greece. The idea is to limit the gaps between the returns of stronger EU members and those of weaker EU members, but whether this will work well remains to be seen.

Another bond crisis in preparation?

The yield on Italian 10-year bonds recently fell from 4.30% to 3.30%, so the first phase of the panic is over. In 2018, when the Fed raised rates and triggered a selloff in equity markets, the yield on Italian 10-year bonds hit 3.85%.

In 2011, during the European debt crisis, yields exceeded 7.0%. This time the ECB does not have the firepower to deal with a crisis of this magnitude because its balance sheet has grown significantly and it cannot print more money without pushing eurozone inflation above the 10% level.

Problems on the EU debt front could push traders back to the safety of the US Dollar and take EUR/USD below 1.0350. With this in mind, traders should closely monitor developments in European government bond markets. Should the ECB fail to limit the yield on Italian bonds, EUR/USD could come under additional pressure.

For an overview of all of today’s economic events, check out our economic calendar.