EUR/USD has ticked lower on Wednesday, after posting losses in the past two sessions. Currently, the pair is trading at 1.1334, down 0.10% on the day. On the release front, German retail sales posted a gain of 0.1%, missing the estimate of 0.5%. In the eurozone, CPI Flash Estimate and Core CPI Flash Estimate both edged higher in October, with readings of 2.2% and 1.1%, respectively. These releases both matched the estimates. As well, the eurozone unemployment rate remained pegged at 8.1%, matching the forecast. In the U.S, ADP nonfarm payrolls is expected to drop sharply to 188 thousand. The indicator kicks off a host of employment releases, highlighted by wage growth and nonfarm payrolls on Friday.
Germany is considered the bellwether of the eurozone, and recent numbers are causing some concern. German retail sales remain soft, posting a gain of 0.1%. This ended a streak of two declines. The eurozone economy is also worrying policymakers. Economic performance has softened in the third quarter, as Preliminary Flash GDP dipped to 0.2%, down from a 0.4% gain in the second quarter. On an annualized basis, Q3 growth was 1.7%, down from 2.2% in the second quarter. Much of the slowdown can be attributed to the crisis over the Italian budget, which was rejected by the European Commission since it breached EU regulations over debt limits. Is confidence waning in the eurozone economy? European Commission reported that economic confidence fell in the eurozone for a tenth straight month. The indicator dropped sharply to 109.8, down from 110.9 points a month earlier. Confidence is lower in the manufacturing and services industries, and retail services managers reported “much grimmer views on the present and expected business situation”. Economic confidence has fallen in Germany, France and Italy, which could translate into further headwinds for the euro in the fourth quarter.
German Chancellor Angela Merkel said on Monday that she would not seek re-election as chair of the Christian Democrats. Merkel made the announcement after her party had a poor result in a regional election. The news sent the euro lower briefly and pushed German bond yields higher. Merkel said she will stay on as Chancellor until her term ends in 2021, but her announcement is another dent in the Iron Lady’s authority, which has diminished as her CDU party has slipped in popularity. Eurozone confidence indicators have looked sluggish recently, and Merkel’s decision to slowly wind up her political career will not help matters.
