EUR/USD has posted modest gains on Tuesday, as the pair trades just shy of the 1.38 line in the European session. In economic news, Federal Reserve chair Janet Yellen surprised the markets when she said that the US economy would require monetary stimulus for some time. It's a busy day in the Eurozone. PMI releases met expectations, while German Unemployment Claims beat the estimate for a fourth straight time. There was more good news, as the Eurozone Unemployment Rate dropped below the 12.0% rate for the first time since February 2013. Today's highlight in the US is ISM Manufacturing PMI.
On Monday, Fed chair Janet Yellen said that "considerable slack" remained in the US economy and this would require further stimulus measures. Currently, the Fed is purchasing $55 billion in assets under its QE scheme. There have been three tapers to QE so far, and Yellen plans to wind up the program in the fall, provided that the US economy does not run into any serious turbulence. At the same time, the Federal Reserve has stated that its has no plans to raise interest rates until sometime in 2015.
German data continues to look solid. February's German Unemployment Change continues to show improvement, as the indicator dropped to -12 thousand, down from -14 thousand a month earlier. German Consumer Climate and Business Climate also looked sharp in February, pointing to stronger confidence in the German economy, the largest in the Eurozone.
With the Eurozone struggling with weak inflation and the euro continuing to trade at high levels, the ECB is openly considering QE and negative rates. Last week, German Bundesbank head Jens Weidmann gave support to a negative deposit rate in order to respond to the strong euro. He also raised the possibility of a QE scheme for the ECB, whereby the central bank would purchase loans or other assets in order to fight deflation, which remains a serious concern. Mario Draghi also spoke on the issue, saying that the ECB is ready to act if inflation slips further.
EUR/USD 1.3795 H: 1.3802 L: 1.3669
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