EUR/USD is unchanged in Friday’s European session, as the pair trades slightly above the 1.06 line. On Thursday, the euro lost ground as US unemployment claims were unexpectedly strong. In economic news, German banks and stock markets are closed for Good Friday, so we can expect thin trading in the currency markets as we wrap up the trading week. In the US, it’s a busy day, with the release of CPI and Retail Sales reports. CPI is expected to tread water at 0.0%, while the forecast for retail sales stands at 0.2%. We’ll also get a look at the Treasury Currency Report, which details currency practices of the United States’s major trading partners. Earlier this week, President Trump said that China was not guilty of currency manipulation, contradicting what he had repeatedly declared onthe campaign trail.
The ECB appears in no hurry to make any changes to its loose monetary policy prior to 2018, or even later. Eurozone inflation levels have picked up in the first quarter, but March levels were softer than expected. This has eased the pressure on the ECB, which is not scheduled to reduce its asset-purchase program until December. In Germany, Wholesale Price Index dropped to a flat 0.0%, compared to 0.5% a month earlier. This was well short of the forecast of 0.4%. The downward trend continued with Final CPI, which dropped to 0.2%, down from 0.6% in February. Eurozone CPI made a big splash in February, when it hit the ECB’s target of 2.0%, and raising speculation that the ECB might need to respond by tightening monetary policy. However, the key index softened in March to 1.5%, short of the forecast of 1.8%.
US consumer behavior has been perplexing analysts, displaying a "hard/soft discrepancy" with regard to consumer indicators. Consumer confidence levels have failed to translate into stronger consumer spending, a key driver of economic growth. Confidence levels are considered "soft" data, compared to actual spending numbers, which are termed "hard" data. Will this pattern continue in the March releases? On Thursday, UoM Consumer Sentiment improved to 98.0, beating expectations and hitting a 3-month high. However, the markets are expecting retail sales reports, the primary gauges of consumer spending, to remain at weak levels. Core Retail Sales and Retail Sales are expected to remain unchanged in March, with gains of 0.2% and 0.1%, respectively. On the business front, surveys are pointing to a similar trend, with weak orders despite high confidence levels. The Fed will be closely monitoring consumer spending reports, and if these numbers remain soft, it’s unlikely that the Federal Reserve will press that trigger more than two more times in 2017.