European FX Outlook: National inflation data set to complement picture of rising growth and low inflation in the Eurozone

What you need to know before markets open:

  • ECB policymakers see the economic outlook for the Eurozone brighter and acknowledge that this is the time to change their communication from ensuring the public of providing endless monetary support to something normal. With no signs of inflation as ECB’s main policy target, the signs of change remain well masked behind words in ECB meeting minutes.
  • The UK Prime Minister confirms finance leaders that banks remain a priority for the post-Brexit shape of Britain as the reports of labor, investment and economic output outflow mount.

Friday’s market moving events

  • China’s trade balance reached an above expectations surplus of $54.7  billion in December with exports rising 10.9% and imports rising 4.5% in the US Dollar terms.
  • French inflation is expected to rise 1.3% y/y in December.
  • Spanish inflation is set to decelerate to 1.2% y/y on the national basis while remaining at 1.3% y/y on the harmonized basis.
  • The US core retail sales are expected to rise 0.4% m/m in December.
  • The US CPI is expected to decelerate to 2.1% y/y in December with core CPI set to remain at 1.7% y/y.
  • German Bundesbank president Jens Weidmann is scheduled to speak at the Ludwig-Erhard summit, in Bavaria at 16:30 GMT.

Major forex market movers

  • The EUR rose as much as 0.85% to $1.2060 after the ECB meeting minutes saw policymakers acknowledging positive economic outlook that justifies the scale back in monetary stimulus provided.
  • The US Dollar will be in the center of attention with the US CPI data due.

Thursday’s macro summary

  • Spanish industrial production rose 4.2% y/y in November, beating the expectations.
  • The Eurozone industrial production rose 1.0% m/m in November exceeding estimates.
  • The German full-year GDP rose 2.2% in 2017
  • The ECB monetary policy meeting minutes revealed that while growth outlook has been improving, the inflation remained subdued justifying the ECB decision to cut the asset purchasing program in half since 2018, but leaving it open-ended.
  • The US core PPI excluding food and energy fell 0.1% m/m in December while decelerated to 2.3% y/y in December. For the whole of 2017, the PPI rose 2.7% after rising 1.7% in 2016.
  • The US weekly jobless claims rose above expectations to reach 261K in the week ending January 5.
  • Canadian new house price index rose 0.1% m/m in November.
  • The UK Prime Minister Theresa May told finance bosses and bankers that they are a priority for Brexit as the reports of a massive, Brexit-related, job losses mount.
  • New York Federal Reserve Bank president William Dudley criticized the negative tax cuts that give a short-term boost to the economy but pose serious long-term risks to the US economic outlook as it can cause economic overheating while worsening fiscal position. Dudley expects US economy to rise 2.5%-2.75% due to tax stimulus with inflation rising in 2018.

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