Little Movement Ahead of Fed Policy Statement

The euro continues to show little movement on Wednesday, as EUR/USD trades quietly in the mid-1.29 range. On the release front, Eurozone CPI held steady with a 0.4%, edging above the forecast of 0.3%. The US will also release CPI numbers later in the day. As well, the Federal Reserve releases its policy statement, with the Fed expected to trim QE by another $10 billion.

It was a poor start to the week in the Eurozone, as German ZEW Economic Confidence, a key event, slipped to 6.9 points last month. The indicator has now dropped over nine consecutive months, down from a high of 62.0 points back in November. Eurozone ZEW Economic Sentiment followed a similar downturn, coming in at 14.2 points, its eighth straight decline. The German indicator managed to beat the estimate of 5.2 points, but the Eurozone figure was well short of the forecast of 21.3 points. The weak data points to weak confidence in the German and Eurozone economies, which does not bode well for the slumping euro.

US inflation indicators remain soft, as underscored by weak manufacturing inflation numbers in August. PPI, a key event, dipped to just 0.0%, a 3-month low. The estimate stood at 0.1%. Core PPI slipped to 0.1%, down from 0.2% a month earlier. This matched the forecast. Meanwhile, US numbers wrapped up last week on a high note. Core Retail Sales improved to 0.3%, edging above the estimate of 0.2%. Retail Sales posted a nice gain of 0.6%, well above the estimate of 0.3%. There was excellent news from the UoM Consumer Sentiment, which bounced back from a weak reading in July and improved to 84.6 points, its best showing since November 2012. The forecast stood at 83.2 points. These indicators point to an increase in consumer confidence and spending, which underscore a deepening economic recovery.

Scottish voters will cast their ballots in a referendum on independence on Thursday. The most recent polls are pointing to a close vote, with many voters still undecided. If voters do choose to secede from the UK, this would create plenty of questions and uncertainty, including what currency an independent Scotland would use and how the national debt would be divided. A vote to split up the UK could lead to turmoil in the markets and weigh heavily on the markets. Traders should treat the referendum as a market-mover, as a close vote could have negative repercussions for the struggling pound.

EUR/USD 1.2962 H: 1.2971 L: 1.2943