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Euro Under Pressure as German Trade Surplus Sinks

EUR/USD is showing limited movement on Thursday, as the pair trades at 1.0680. In economic news, it’s another light schedule. Germany’s trade surplus fell to EUR 18.4 billion, well off the forecast of EUR 23.2 billion. In the US, today’s highlight is unemployment claims, with the indicator expected to climb to 249 thousand. On Friday, the US releases UoM Consumer Sentiment. The markets aren’t expecting much movement, with a forecast of 97.9 points.

Germany, the eurozone’s largest economy, continues to post mixed numbers. On Thursday, Germany’s trade surplus dropped sharply to EUR 18.4 billion in December, compared to EUR 21.7 billion a month earlier. This marked the smallest surplus since November 2014. Early on in 2017, Mario Draghi & Co. can sleep easier, as eurozone growth and inflation numbers have been moving higher. Inflation, which has been at low levels for years, has climbed in recent months, buoyed by higher oil prices. This is positive news for the ECB, which has long tried to raise inflation with an ultra-loose monetary policy. Still, inflation levels remain well below the ECB’s target of 2 percent. On Monday, ECB President Mario Draghi poured cold water on hopes of a change in monetary policy due to the improved economic climate. Draghi said that the eurozone economy was not yet strong enough to withdraw the bank’s stimulus program. Draghi’s comments sent the euro lower, as EUR/USD is down 1.2 percent this week. There are also market jitters over the French presidential elections in April. Marie Le Pen, the far-right candidate in the ring, is not only a strong supporter of Donald Trump, but is hoping to pull off a Trump-style upset win. Le Pen has promised a referendum on taking France out of the European Union, which has put further pressure on the euro.

Donald Trump didn’t field much of an economic platform during the election campaign, but he did promise a significant fiscal boost through infrastructure spending and tax cuts. This led to a post-election euphoria in the markets and boosted the US dollar. Fast forward to February, and optimism has been replaced by caution and unease, as Trump continues to entangle himself in controversy, both with US trading partners and at home, with the media and Supreme Court. The markets are disappointed that Trump has not unveiled an economic plan or blueprint, limiting himself to protectionist rhetoric which has sent alarm bells ringing worldwide. On Wednesday, Goldman Sachs forecast that the administration won’t implement tax reform or infrastructure spending before 2018.

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