Euro to Look Past German Data, Focus on ECB Annual Report

The Euro is likely to look past German Industrial Production data to focus on potential stimulus expansion clues lurking within the ECB annual report.

Talking Points:

• German Industrial Production, Swiss CPI Likely to Pass Without Fanfare    

• AQR Cues in the ECB Annual Report May Be Market-Moving for the Euro    

• Aussie Dollar Down, Japanese Yen Higher as Stocks Drop in Asian Trade

A relatively quiet European economic calendar is headlined by February’s German Industrial Production and March’s Swiss Consumer Price Index figures. The former report is due to the year-on-year output growth rate marginally slowed to 4.7 percent from the 5 percent recorded in February. The latter is set to put the headline inflation rate at -0.1 percent, matching the prior month’s result. Neither release is likely to produce a significant response from price action given their limited implications for traders’ ECB and SNB monetary policy outlook.

The release of the ECB Annual Report may prove of greater note. Traders continue to speculate on the possibility that the deepening disinflation will prompt the central bank to expand monetary stimulus. We’ve argued that Mario Draghi and company are waiting for their Asset Quality Review (AQR) to be well-enough along to reveal the gap in policy transmission that has produced cheap borrowing costs in the interbank space without arresting the slide in lending to the real economy. That will set the stage for crafting an easing effort that repairs or bypasses the hole in the stimulus delivery mechanism. With that in mind, an AQR progress report in the Annual Report may prove market-moving for the Euro.

The Australian Dollar underperformed in otherwise quiet overnight trade, sliding as much as 0.2 percent against its US namesake. The move appeared corrective after the Aussie outperformed against the greenback on Friday in the wake of a mild disappointment on March’s US nonfarm payrolls print. A selloff on Asian stock exchanges likewise didn’t offer any favors to the sentiment-linked survey. The MSCI Asia Pacific regional benchmark index fell 0.5 percent in what looked like playing catch-up to Friday’s selloff on Wall Street. The Japanese Yen traded higher as the risk-off mood bolstered haven demand for the haven currency.

Critical Levels