Euro stands above 1.1650, supported by upbeat German macroeconomic data

• EUR/USD flatlines around 1.1660, after pulling back from three-month lows at 1.1710.
• German GDP and IFO Business Sentiment data have provided some support to the Euro.
• Market volatility remains low, ahead of the US PCE Price Index and the Jackson Hole Symposium.

The Euro (EUR) remains practically flat against the  US Dollar (USD) on Tuesday, trading above 1.1650, at a relatively short distance from the three-month highs, at 1.1710 hit last week. The EUR/USD pair keeps drawing support from a soft US Dollar, which remains depressed, amid concerns about the Federal Reserve’s (Fed) independence in the aftermath of the US Treasury’s bond buyback plans.

In the Eurozone, German data released on Tuesday has been supportive, although investors are wary of placing large directional bets on the US Dollar, awaiting the US PCE Price Index release, due on Wednesday, but, above all, the Fed Chairman Kevin Warsh’s speech at the Jackson Hole summit.

German data beats expectations

Earlier on Tuesday, the German IFO Business Climate Index for August showed an improvement to 88.8, its highest reading in one year, up from 87.2 in July and above market expectations of a more moderate rise, to 87.2.

Beyond that, the sentiment about the current economic situation has improved to 88.5 from 86.5 in the previous month, while the economic expectation gauge rose to 89.1 from 86.8 in July, in both cases exceeding the market consensus. 

Before that, data from the German Federal Statistics Office revealed that the German Gross Domestic Product (GDP) grew at a 0.3% pace from April to June, above the 0.2% rate shown by preliminary estimations, and matching the first quarter’s growth. The year-over-year figure has also been revised up to 1%, from the preliminary 0.9% estimate, and well above the 0.4% yearly increase seen in the first quarter.

Looking ahead, ING strategists warn that the “short-term fair value for EUR/USD (is) just below 1.160,” according to their models, which they see as evidence that there is “some – albeit contained – risk premium on the Dollar linked to the US Treasury buyback announcement from last week.”