The euro has posted gains in the Tuesday session and is trading at a 3-week high. Currently, EUR/USD is trading at 1.1716, up 0.42% on the day. In economic news, German Preliminary GDP accelerated to 0.8% in the third quarter, above the estimate of 0.6%. German Final CPI remained unchanged at a flat 0.0%. Eurozone Flash GDP remained unchanged at 0.6%, matching the forecast. ZEW Economic Sentiment reports were mixed. The German release of 18.7 missed the forecast of 19.8, while the Eurozone reading jumped to 30.9, above the estimate of 29.3 points. Central bankers will attend an ECB event in Frankfurt, and the markets will be listening closely to Mario Draghi and Janet Yellen.
German GDP jumped to 0.8% in the third quarter, recording its strongest quarter since 2014. Germany’s economy is growing at annualized rate of 2.8% in 2017. The catalyst for the strong reading was an increase in business investment, as sales of machinery and equipment increased. German fundamentals remain strong, as business and consumer confidence is high and unemployment remains at record-low levels. However, the positive economic conditions have failed to trigger much inflation, which has been a problem throughout the eurozone. German Final CPI dripped to 0.0% in October, the first time inflation has not moved higher since May. 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.
With central banks signalling major policy shifts, communicating clearly with markets has become even more critical. The ECB is hosting a meeting on the challenges of central bank communication, and Janet Yellen and Mario Draghi will both be participating in the discussions. The ECB is set to taper its asset-purchase program in January, while the Fed has started trimming its massive balance sheet. Both Yellen and Draghi are all-too-familiar with unwanted market movement when investors have misinterpreted the Fed or the ECB, and will not want to repeat past mistakes.
