HomeContributorsFundamental AnalysisEuro Shrugs Off Strong German Trade Surplus

Euro Shrugs Off Strong German Trade Surplus

EUR/USD continues to have a quiet week. Currently, the pair is trading at 1.1806, up 0.11% on the day. On the release front, Germany’s trade surplus improved to EUR 21.2 billion, above the estimate of EUR 20.8 billion. In the US, today’s major event is US JOLTS Jobs Openings, which is expected to improve to 5.74 million. On Wednesday, the US releases two employment indicators – Preliminary Nonfarm Productivity and US Preliminary Unit Labor Costs.

The euro has been on a roll over the past few months, as EUR/USD has soared 10.7% since April 1. Last week, the euro briefly pushed across the 1.19 line, its highest level since January 2015. Although the US economy is in better shape than the eurozone, investors have snapped up the continental currency, as expectations remain high that the ECB is not far away from starting to wind down its ultra-easy monetary policy. The cautious ECB has not provided any dates for a change in policy, but in June, ECB President Mario Draghi spoke about a “strengthening and broadening recovery” in the eurozone, and this sent the euro soaring. Clearly, any hints from the ECB about tightening policy could send the euro higher. In contrast, the dollar has taken a beating, as Donald Trump’s antics and inability to pass healthcare legislation has increased political risk in the US. As well, the Federal Reserve’s monetary policy remains unclear. Earlier this year the Fed strongly hinted that it planned to raise rates three times in 2017, but has only pressed the rate trigger twice. In June, Fed Chair Janet Yellen shrugged off low inflation, saying that it was due to “transient” factors, leaving the impression that the Fed still planned one final hike. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed’s target of 2%. The markets have become more skeptical about a rate hike in December, as the odds have fallen to 33%, compared to 43% a week ago.

A strong US economy continues to grapple with weak inflation, which is also apparent in the labor market. Although the nonfarm payrolls report in July easily beat expectations and the unemployment rate dropped from 4.4% to 4.3%, wage growth remains a sore point. In July, Average Hourly Earnings remained unchanged at 0.3%, and the indicator has failed to break above 0.3% in 2017. The weakness in earnings growth has puzzled economists, as a red-hot labor market should translate into higher wages. In fact, wage growth has actually slowed in 2107, and this could have significant economic repercussions, as consumers are responding by holding tight on the purse strings and reducing spending.

MarketPulse
MarketPulsehttps://www.marketpulse.com/
MarketPulse is a forex, commodities, and global indices research, analysis, and news site providing timely and accurate information on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors. This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Featured Analysis

Learn Forex Trading