The euro has edged lower in the Tuesday session, following two straight losing sessions. Currently, EUR/USD is trading at 1.1929, down 0.35% on the day. On the release front, German Industrial Production rebounded with a sharp gain of 3.4%, above the estimate of 1.9%. Germany’s trade surplus widened to EUR 22.3 billion, beating the forecast of EUR 20.7 billion. The eurozone unemployment rate ticked down to 8.7%, matching the forecast. In the US, today’s key event is JOLTS Job Openings, which is expected to climb to 6.05 million.
More German indicators more positive news. Industrial Production jumped 3.2%, after two consecutive declines. This marked only the second gain since July. Germany’s trade surplus climbed to EUR 22.3 billion in December, its highest surplus since May 2016. December indicators have pointed upward, including manufacturing and services PMIs, retail sales, and employment data. However, the political landscape in the eurozone’s largest economy remains cloudy. President Angela Merkel is now looking at the Social Democrats to help her make a new government, and preliminary talks are underway. The negotiations are likely to be lengthy, and the current caretaker government could remain in office for several more months.
When the Federal Reserve makes the financial headlines, the discussion is usually focused on interest rates. The Fed took advantage of a strong US economy in 2017, raising interest three times. Another quarter-point hike is widely expected later in January. As of this month, the Fed has started to shrink its massive balance sheet of $4.4 trillion. The balance sheet ballooned during the financial crisis of 2008-2009, and good times have allowed the Fed to begin trimming its portfolio. Incoming Fed Chair Jerome Powell, who takes over in February, has estimated that the balance sheet could drop to anywhere between $2.4 trillion to $2.9 trillion after several years of cuts. Fed policymakers have not indicated a magic number for the balance sheet, but the cuts indicate a vote of confidence in the US economy.
