EUR/USD is showing little movement this week, as the pair hovers close to the 1.19 level. Currently, the pair is trading at 1.1904, up 0.07% on the day. In economic news, German and Eurozone Services PMI were within expectations. Eurozone Retail Sales came declined 0.2%, shy of the estimate of -0.3%. In the US, today’s major event is Factory Orders, with the markets braced for a sharp decline of 3.3%. We’ll also hear from three Federal Reserve FOMC members – Lael Brainard, Neel Kashkari and Neel Kashkari. On Wednesday, the US releases ISM Non-Manufacturing PMI, with an estimate of 55.5 points.
There were no surprises in the eurozone services sector, as German and Eurozone PMIs both pointed to slight expansion. Eurozone Services PMI slowed to 54.7, shy of the estimate of 54.9 points. However, German Services PMI improved to 53.5, edging above the forecast of 53.4 points. Retail Sales in July disappointed with a decline of 0.3%, compared to a gain of 0.5% a month earlier. This marked the first decline since January.
The markets are keeping a close eye on the ECB, which will hold a policy meeting on Thursday. The ECB’s current asset-purchase program terminates in December, and the bank will have to decide on a new scheme. However, analysts don’t expect the details of the new program to be announced until October or possibly December. Still, every nuance from Mario Draghi’s press conference will be analyzed, and any hints about changes in the ECB’s monetary policy, such as withdrawing stimulus, is likely to have a sharp impact on the euro. The eurozone’s strong performance in 2017 has raised speculation that the ECB will commence taper,ing in the near future, but the rejuvenated euro has complicated matters. The euro has gained some 13% against the dollar this year, with much of the appreciation due to speculation that the ECB will end its asset purchases. The stronger euro is equivalent to a raise in interest rates and has resulted in monetary tightening, so the ECB could decide on a slow exit from its asset purchase scheme. Aside from the headache of a stronger euro, ECB policymakers must wrestle with the dilemma of what monetary stance to take with a stronger eurozone economy that remains gripped by very low inflation. Will the ECB address these concerns at the Thursday meeting?
