HomeContributorsFundamental AnalysisEuro Shrugs Off Strong Eurozone Inflation and GDP Data

Euro Shrugs Off Strong Eurozone Inflation and GDP Data

EUR/USD is almost unchanged in the Tuesday session. Currently, the pair is trading at the 1.07 line. On the release front, it’s a busy day. In the Eurozone, CPI Flash Estimate gained 1.8%, above the estimate of 1.5%. Preliminary Flash GDP improved to 0.5%, edging above the forecast of 0.4%. The unemployment rate dropped to 9.6%, compared to an estimate of 9.8%. The news was not as good from German Retail Sales, which declined 0.9%, nowhere near the forecast of +0.6%. Later in the day, ECB President Mario Draghi delivers remarks at a conference of the ECB and the European Commission. In the US, today’s key event is CB Consumer Confidence, with the markets expecting a strong reading of 112.8 points. On Thursday, the Federal Reserve will set the benchmark interest rate, which is expected to remain pegged at 0.50%.

Germany’s economy continues to raise concerns, as consumer indicators have looked dismal this week. German Retail Sales, the primary gauge of consumer spending, posted a sharp decline of 0.9%, its fourth decline in five readings. This reading comes on the heels of Preliminary CPI, which declined 0.6%, its first decline in 9 months. However, there was good news from the job front, as unemployment claims dropped by 26 thousand, much better than expected.

Analysts expected the US economy 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 continues to stir controversy, after signing a host of executive orders last week 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 Trump has withdrawn from the Trans-Pacific Partnership and declared he will reopen the NAFTA trade agreement with Canada and Mexico.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. It’s a safe bet that Trump’s offhand tweets and comments will continue to fuel market volatility.

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