EURUSD – Euro Unchanged as German GDP, CPI Matches Forecasts

The euro has shown some movement in both directions but is unchanged in the Wednesday session.  Currently, the pair is trading at 1.2356, up 0.04% on the day. It’s a busy day for fundamentals, with key releases out of the eurozone and the US. In Germany, Preliminary GDP slowed to 0.6% in the fourth quarter, matching the estimate. Final CPI declined 0.7%, also matching the forecast. Eurozone Flash GDP for Q4 remained steady at 0.6% for a third straight quarter, matching the estimate. In the US, the markets are expecting mixed inflation numbers. Core CPI is expected to expected to edge lower to 0.2%, while CPI is forecast to improve to 0.1%. The US will also release retail sales reports. Retail Sales is forecast to slow to 0.2%, while Core CPI is forecast to accelerate to 0.5%. Traders should be prepared for movement from EUR/USD during the North American session.

The stock market sell-off has triggered some volatility in the currency markets, and this is causing concern at the ECB. Last week, ECB President Mario Draghi said that he is more confident that eurozone inflation is moving closer to the Bank’s target of just below 2 percent, due to improving economic growth. However, Draghi listed currency market volatility as an obstacle to the inflation target, and added that the ECB would carefully monitor the euro’s exchange rates. Draghi’s concerns about the exchange rate are likely even stronger, after the euro fell 1.6 percent last week. The ECB tapered its massive stimulus program from EUR 60 billion to 30 billion/mth in January, and the markets are on the lookout for hints as to whether the ECB will normalize policy and wind up stimulus in September.

Global stock markets have steadied after last week’s turbulence, but investors remain wary. Wednesday’s US inflation numbers will be closely watched, as inflation fears was a key catalyst of the massive sell-off. The new head of the Federal Reserve, Jerome Powell, sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

EUR/USD Fundamentals

• 2:00 German Preliminary GDP. Estimate 0.6%. Actual 0.6%

• 2:00 German Final CPI. Estimate -0.7%. Actual -0.7%

• 3:00 German Buba President Weidmann Speaks

• 4:00 Italian Preliminary GDP. Estimate 0.4%. Actual 0.3%

• 5:00 Eurozone Flash GDP. Estimate 0.6%. Actual 0.6%

• 5:00 US Industrial Production. Estimate 0.1%. Actual 0.4%

• Tentative – German 30-year Bond Auction

• 8:30 US CPI. Estimate 0.3%

• 8:30 US Core CPI. Estimate 0.2%

• 8:30 US Core Retail Sales. Estimate 0.2%

• 8:30 US Retail Sales. Estimate 0.5%

• 10:00 US Business Inventories. Estimate 0.3%

• 10:30 US Crude Oil Inventories. Estimate 2.8M

• 5:00 Eurozone Trade Balance. Estimate 22.4B

• 8:30 US PPI. Estimate 0.4%

• 8:30 US Empire State Manufacturing Index. Estimate 17.7

• 8:30 US Philly Fed Manufacturing Index. Estimate 21.5

• 8:30 US Unemployment Claims. Estimate 229K

Open: 1.2351 High: 1.2393 Low: 1.2346 Close: 1.2356

EUR/USD Technical

EUR/USD inched higher in the Asian session and has retracted in European trade

• 1.2286 is providing support

• 1.2357 was tested earlier in resistance and is under strong pressure

Further levels in both directions:

• Below: 1.2286, 1.2200, 1.2092 and 1.1961

• Above: 1.2357, 1.2481 and 1.2569

• Current range: 1.2286 to 1.2357