EUR/USD: Flat as German Consumer Confidence Sparkles

EUR/USD continues to have a very quiet week, as the pair trades just above the 1.36 line in Wednesday's European session. On the release front, there was positive news out of Germany, as GfK German Consumer Climate climbed sharply in May. Italian Retail Sales also improved last month. In the US, it's another busy day, with two key releases on the schedule - Core Durable Goods Orders and Final GDP.

US data looked sharp on Tuesday, with strong gains in consumer confidence and housing numbers. CB Consumer Confidence improved to 85.2 points, beating the estimate of 83.6 points. It was the strongest level since December 2007. New Home Sales had a superb reading, jumping to 504 thousand, crushing the estimate of 442 thousand. It was the key indicator's best showing since August 2008. If upcoming indicators continue to point upwards, we could see the US dollar gain strength at the expense of the euro.

On Wednesday, German Consumer Climate looked sharp, as the key indicator jumped to 8.9 points, after spending the past four months stuck at 8.5 points. The estimate stood at 8.6 points. This strong reading comes on the heels of German Ifo Business Climate, which lost ground for a second straight month, dipping below the 110 line for the first time since December. As the largest economy in the Eurozone, German releases are closely watched by the markets, and key German data can affect the movement of EUR/USD.

Eurozone PMIs are key indicators of growth in the services and manufacturing sectors, and across the board, the May numbers were a disappointment. The German and Eurozone figures remained above the 50-point level, pointing to expansion. However, the French figures remained below the 50 mark, pointing to continuing contraction in the manufacturing and services sectors of the Eurozone's second largest economy. A worrying trend is that with the exception of Eurozone Services PMI, all of the PMIs posted their weakest reading in 2014.

Unlike his peers at the BOE and Federal Reserve, ECB head Mario Draghi is not being coy about possible interest rate hikes. On the weekend, Draghi stated flat out that he did not foresee the ECB raising rates before 2017. Draghi noted that the ECB had extended access by European banks to unlimited liquidity until that time, and that the Eurozone recovery was still weak. However, traders should not treat Draghi's remarks as etched in stone, as the ECB will likely have to raise rates if the economy recovers faster than anticipated.

EUR/USD 1.3606 H: 1.3619 L: 1.3599