European FX Outlook: German IFO business climate is expected to decelerate sharply in April

What you need to know before markets open

• The US benchmark Treasury yield jumped to 2.99% on Monday pushing the US Dollar higher across the board.
• German IFO business climate index headlines Tuesday after the Eurozone manufacturing decelerated less than expected in April while services PMIs increased keeping the composite PMI steady.
• The UK Prime Minister Theresa May is facing a tough opposition within her Tory party after the House of Commons is debating this week the proposal of the House of Lords for the UK to stay within customs union with EU after Brexit.

Tuesday’s market moving events

• The Australian CPI increased 0.5% Q/Q while increasing 2.0% y/y in Q1 2018, in line with expectations.
• Swiss trade balance is expected to reach a surplus of CHF 3.23 billion in March, up from 3.138 in February.
• German IFO business climate indicator is expected to decelerate sharply to 102.7 in April from 114.7 in March matching the sharp deceleration in ZEW investors confidence indicator.Read more about the ZEW index decelerating in my analysis here.
• The UK public sector net borrowing is expected to reach £ 900 million in March.
• The UK CBI industrial trends are seen improving to 7 in April, up from 4 in March.
• The US S&P/Case Shiller house price index is expected to rise 6.3% y/y in February.
• The US news home sales are seen rising 1.9% m/m in March to 630K up from 618 K in the previous month.

Major market movers

• The US Dollar was boosted across the board as rising US benchmark Treasury yield moved toward the key psychological level of 3.0%.
• Markets welcomed the Australian inflation data with a yawn as AUD reversed a small dip.
• Watch the EUR/USD factoring in the German IFO business climate indicator. For further hints on how to trade the indicator read the analysis here.

Monday’s macro summary

• German composite PMI surprised on the upside rising 0.2 points to 55.3 in April with manufacturing activity decelerated less than expected to 58.1 from 58.2 in March and services PMI increased to 54.1.
• The Eurozone composite PMI also beat the expectation while remaining at the unchanged level from March at 55.2 in April following the manufacturing and services activity pattern in Germany.
• Canada’s wholesale sales declined 0.8% m/m to $62.8 billion in February, the largest downward movement and the second monthly drop since September 2017.
• The US manufacturing PMI rose to the highest level in 43 months to  56.5 in April compared with 55.6 in March.
• The US existing home sales climbed up 1.1% m/m in March to 5.60 million, up from 5.54 million in February.