EUR/USD has steadied in the Monday session, after posting sharp gains on Friday. Currently, the pair is trading at 1.1413, up 0.07% on the day. On the release front, there are no major eurozone or German events. ECB President Mario Draghi will testify before the European Parliament Economic and Monetary Affairs Committee. The markets will be looking for hints about future monetary policy. On Tuesday, the U.S. releases CB Consumer Confidence, which is expected to drop to 125.0 points.
German economic data continues to raise concerns. On Friday, German Ifo Business Climate dipped to 99.1, below the 100-level for the first time since 2010. Earlier in the week, a ZEW survey found that institutional investors remain deeply pessimistic about the German and eurozone economies. There was also grim news from the manufacturing front, as German manufacturing PMI slipped to 49.9, falling into contraction territory for the first time since 2013. As the largest economy in the eurozone, Germany is a bellwether for the rest of the bloc, and if the soft numbers continue, investors could lose their enthusiasm for the euro.
The U.S. dollar retreated on Friday, after a breakthrough in the U.S. government shutdown crisis. President Trump agreed to reopen government services for a 3-week period, even though he did not receive any funds for his border wall with Mexico. Risk sentiment jumped, as investors are optimistic that the temporary deal will lead to an agreement which resolves the shutdown. Equity markets climbed on Friday, and EUR/USD surged over 1.0 percent.
There were no surprises from the ECB on Thursday, as the central bank maintained policy as well as guidance for “rates to remain at their present levels at least through the summer of 2019”. With the ECB finally winding up its massive stimulus scheme, market focus has shifted to the timing of a rate hike. However, with the eurozone economy showing signs of weakness, we’re unlikely to see a rate hike before the fourth quarter, at the earliest. The ECB remains cautious, and said that risks “have moved to the downside”. This dovish stance indicates that the euro will not be receiving any support from the bank, and will have to rely on stronger data in order to attract investors.
