HomeContributorsFundamental AnalysisEUR/USD – Lack Of Fundamentals Leaves Euro Subdued

EUR/USD – Lack Of Fundamentals Leaves Euro Subdued

The euro has ticked higher in at the start of the week. In Monday’s European session, EUR/USD is trading at 1.1220. There are no major releases out of the eurozone or the US. On Tuesday, Germany releases ZEW Economic Sentiment and the US publishes PPI.

The markets had low expectations going ahead of the ECB meeting last week, so there was some surprise as the central bank did tweak its monetary stance. The ECB kept the benchmark rate pegged at 0.00%, and made no changes to its asset-purchase plan (QE) of EUR 60 billion/month. The cautious ECB did, however, remove its guidance on rate cuts, as the ECB rate statement said that it expected interest rates to remain at “present levels” for an extended period of time. This was slightly more hawkish than the April statement, which said that policymakers expected rates to remain at present or lower levels” for an extended period. As well, Mario Draghi characterized risks to the economy as “broadly balanced”, compared to previous warnings that risks were “tilted to the downside. The subtle nuance in wording appears to be a nod to improving economic conditions in the euro-area, and could be a sign that the ECB may look to wind up its stimulus program before it terminates in December, if the economy continues to improve. The ECB has revised upwards its growth forecast for 2017 and 2018, although it has lowered its inflation forecast, which may have weighed on the euro and prevented any gains following the ECB rate meeting.

There was little suspense in the first round of French parliamentary elections, as President Emmanuel Macron led with 28% of the vote. Macron is expected to win a huge majority in the second round of voting on Sunday, which will determine the makeup of the 577 seats in the National Assembly. Macron, whose party is just a year old, is expected to put forward pro-business legislation, which will not sit well with the powerful labor unions. Macron wants to streamline government and overhaul labor laws, in order to revive a weak economy. Any changes to France’s generous employment benefits is bound it be contentious, but a strong majority in parliament will make Macron’s job easier.

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