The euro has started the trading week quietly. Currently, EUR/USD is trading at 1.1648, down 0.19% on the day. In economic news, there are no major German or Eurozone indicators. German Wholesale Price Index slowed to 0.0%, missing the forecast of 0.4%. On Tuesday, Germany and the eurozone release GDP reports, and Germany will publish ZEW Economic Sentiment. As well, Mario Draghi and Janet Yellen will participate in a panel at an event organized by the ECB.
The ECB tends to move cautiously, and in October, the central bank finally tapered its stimulus program (QE), with a “less but longer” setup. Starting in January, the ECB will cut its monthly asset purchases from EUR 60 billion to 30 billion. However, QE is being extended until September 2018, as the Bank is weaning the eurozone off stimulus. With the eurozone economy exceeding expectations in 2017, some policymakers have expressed reservations about the gradual pace of trimming stimulus, arguing that the Bank should cut the asset purchases at a faster rate. Governing Council member Philip Lane, head of the Irish central bank, said last week that if inflation moves closer to 2 percent, the ECB should tighten at a faster pace. The heads of the German and Austrian central banks, who are also on the Governing Council, went even further, saying that the ECB should have indicated a clear intent to end asset purchases, rather than announce an extension. If eurozone indicators continue to point upwards, ECB President Mario Draghi will be under pressure to terminate QE before September, or lower the size of the asset purchases. If that happens, the euro could gain ground.
It’s report card time on Tuesday, as Germany and the eurozone release GDP reports for the third quarter. Both releases are forecast to show respectable gain of 0.6% percent. The German economy has looked sharp in 2017, buoyed by solid consumer demand and a strong global appetite for German products. Germany has been the locomotive for the euorozone, and boosted traditional laggards such as France and Spain. Geopolitical concerns such as Catalonia and Brexit have the potential to crash the party, but in the meantime, eurozone indicators have generally been pointing upwards.
