HomeContributorsFundamental AnalysisEuro Steady at 1.07, Markets Brave for Soft German CPI

Euro Steady at 1.07, Markets Brave for Soft German CPI

EUR/USD has edged lower in the Monday session. Currently, the pair is trading just below the 1.07 level. On the release front, Germany releases Preliminary CPI later in the day, with the estimate standing at -0.5%. In the US, today’s key event is Pending Home Sales, with the indicator expected to rebound with a strong gain of 1.6%. On Tuesday, German releases retail sales and the Eurozone will publish GDP and CPI reports. Mario Draghi will deliver remarks at a joint conference of the ECB and European Commission. In the US, we’ll get a look at CB Consumer Confidence.

As Europe’s largest economy, Germany’s economic data is considered the bellwether of the Eurozone, and key German indicators should be treated as market-movers. Last week, German GfK Consumer Climate rose to 10.2 points in December, climbing for a third consecutive month. On the inflation front, Eurozone indicators have been rising, but the markets are bracing for a decline of -0.5% from German Preliminary CPI. The index has posted consecutive gains since May 2016. Germany will release retail sales on Tuesday. The key consumer spending indicator has struggled, posting three declines in the past four months. However, the estimate for December is 0.6%. As for the Eurozone, the bloc enters January 2017 in decent shape, but there are risks ahead. On Thursday, an IMF report found that economic growth in the Eurozone was improving and projected growth of 1.6 percent in 2017 and 2018. However, the report also warned that political instability could on the Eurozone economy, with Britain’s departure from the EU and elections in several Eurozone countries where many voters are skeptical about European integration.

US economic growth was expected to soften in the fourth quarter, and GDP fell a bit short of the forecast. The economy expanded 1.9%, shy of the estimate of 2.1%. Business investment and consumer spending remains solid and should continue into 2017. However, Trump’s protectionist rhetoric and action, which saw tensions escalate with Mexico last week, could cloud the bright picture for the US economy.

Donald Trump has just started his new position, but he has already signed a host of controversial executive orders which have been condemned both domestically and abroad. Trump has withdrawn from the Trans-Pacific Partnership and declared he will reopen the NAFTA trade agreement with Canada and Mexico. He has also ordered work to begin on a wall with Mexico and banned immigrants from seven Moslem countries. Trump’s unconventional and disjointed approach to international politics and trade could have major ramifications on global trade and could lead to financial instability in global markets, triggering volatility in the currency markets. Just a few days before being sworn in as president, Trump stated that the US dollar was "too strong", blaming a weak Chinese currency. Predictably, the greenback lost ground after Trump’s remarks. Still, Trump’s shock election win in November has boosted the US dollar, with EUR/USD dropping 2.1% during that time.

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