EUR/USD – Euro Firm As German Business Climate Shines

The euro continues to point upwards, as EUR/USD trades in the low-1.38 range in Thursday trade. The euro got a helping hand from German Ifo Business Climate, which beat the estimate. Later in the day, ECB President Mario Draghi will speak at an event in Amsterdam. In the US, there are two major events on the schedule - Unemployment Claims and Core Durable Goods Orders.

There was good news out of Germany on Thursday, as Ifo Business Climate continues to cruise at high levels. The key indicator improved to 111.2 points, beating the estimate of 110.5. The indicator has been above the 110 level throughout 2014, indicating strong optimism in the business sector with regard to the German economy. German data can have a strong impact on EUR/USD, as Germany is the Eurozone's largest economy.

In the US, New Home Sales was a disaster, as the key indicator plunged to 384 thousand in March, down from 440 thousand in the previous release. The weak reading was nowhere near the estimate of 455 thousand, and marked an eight-month low for the key housing indicator. The housing sector is showing signs of weakness, as both New Home Sales and Existing Home Sales have been on a sustained downward trend.

US inflation levels have been lukewarm, but so far the Federal Reserve has done little more than point out that it would like to see inflation move closer to the Fed's target of 2%. The House Price Index, a gauge of activity in the housing sector, rose a respectable 0.6% last month, matching the forecast. It's a different tale in the Eurozone, where inflation continues to be persistently low and there is real concern about deflation, which could inflict serious damage on the fragile Eurozone economy. The ECB has balked at taking any action to deal with inflation, but its hand may be forced if inflation levels don't show some life.

The markets haven't reacted to events in Ukraine so far, but that could change if the violence in the east of the country worsens. Russian President Vladimir Putin has threatened to act on his "right" to invade Ukraine, and has also given the country an ultimatum regarding its gas debt. The gas supply from Russia to western Europe is in danger, and if the situation spills out of control, we could see a sharp response from the markets. US Vice-President Joe Biden is in Kiev for a symbolic visit. The West doesn't have many cards to play against Russia, so every move by Putin will be scrutinized and could impact on the markets.

EUR/USD 1.3831 H: 1.3843 L: 1.3812