The euro is unchanged in the Thursday session, as EUR/USD hugs the 1.09 level. The lack of movement could change during the day, as there is a host of indicators in the eurozone and the US. Germany will release Preliminary CPI, with an estimate of -0.1%. The ECB will announce its benchmark rate, which is expected to remain at a flat 0.0%. In the US, it’s a busy day, with three key events – Core Durable Goods Orders, unemployment claims and Pending Home Sales. On Friday, we’ll get a look at German Retail Sales and Eurozone CPI Flash Estimate. The US will release Advance GDP and Preliminary UoM Consumer Sentiment.
The ECB will meet for its monthly rate meeting on Thursday. Although central bank meetings always attracts the attention of the markets, this could turn out to be a non-event, unless Mario Draghi makes some waves in his press conference. The benchmark interest rate has been pegged at a flat 0.0% since March 2016, and no changes are expected. With the eurozone showing stronger inflation and growth numbers in the first quarter, there has been speculation that the ECB might taper its asset-purchase program, which runs until December, ahead of schedule. However, the ECB appears content to hold course, barring any significant change in growth or inflation numbers. There is also the political card to keep in mind, as the ECB does not want to be seen as intervening in the current French election, or when Germany holds elections in September.
The second round of the French election is only days away, and the markets have priced in a convincing victory by Emmanuel Macron over Marie Le Pen. Macron enjoys a comfortable margin of 60-40 in opinion polls, but round two of the campaign has not gone well for the front-runner. Macron was jeered by workers at a factory in his hometown of Amiens, only to have Le Pen show up unexpectedly, to the delight of the workers. A BFM TV poll showed that more voters feel that Le Pen’s campaign has been more successful in the second round than that of Macron. This may not change the expected outcome, but a strong showing by Le Pen on Sunday would show that her strident anti-EU stance has wide popularity, and this could sour investor sentiment and hurt the euro.
President Trump announced his tax plan on Wednesday. The proposal calls for sharp reductions for both individuals and corporations. There would be three rates for individuals – 10%, 25% and 35%. The corporate sector would also see significant tax relief, with the corporate tax rate dropping from 35% to 15%, and the tax on multinationals’ overseas profits lowered from 35% to 10%. However, any tax reform proposals from the White House will require a stamp of approval from Congress, so Trump’s proposal should be viewed as a blueprint that is a long way off from becoming law. Trump’s proposal was short on details, although government officials are praising it as one of the largest tax cuts and broadest overhauls of the tax system in history. There hasn’t been much reaction from the euro, which has been subdued in Thursday trading.
US consumer confidence levels remain high, but there was some disappointment as CB Consumer Confidence dropped to 120.3 in April, missing the estimate of 123.7. The softer than expected reading boosted the euro in the Tuesday session. What is troubling analysts is that strong consumer confidence numbers have not translated into increased consumer spending, a key component of economic growth. This trend has been labeled the “hard/soft discrepancy” (confidence being ‘soft’, while actual spending being ‘hard’). This was underscored in March retail sales numbers, which came in at a flat 0.0%, shy of the forecast. Next up is Advance GDP on Friday, which is expected at 1.3 percent. An unexpected GDP reading could have a sharp impact on EUR/USD.
