Any bouts of EUR/USD downside 'to be brief'

Economic news out of the Euro Area economy so far this week has been relatively downbeat. Industrial production figures on Monday confirmed that output in the sector contracted in December (down 1.4% month-on-month) for the first time since August. The ZEW economic and business sentiment surveys also disappointed, albeit remained at rather favourable levels relative to recent averages.

The euro has continued to find a foothold around the 1.185 level on the dollar, however, and we continue to think that any bouts of downside in the EUR/USD pair are likely to be rather brief, particularly should Friday’s PMI figures point to continued solid growth in the common bloc economy. Our main focus will be whether we are finally seeing an impact of massive government infrastructure spending in the German composite index.