EUR/USD – Slightly Lower As German Business Climate Dips

EUR/USD has edged downwards in Tuesday trading, but remains above the 1.38 level, as the euro's downward trend continues. In economic news, German Ifo Business Climate weakened in February but met expectations. Later today, ECB head Mario Draghi will speak at an event in Paris. There are two major releases out of the US, CB Consumer Confidence and New Home Sales.

The week started with a host of PMI releases out of the Eurozone. French Manufacturing and Services PMIs both pushed above the 50 mark, which indicates expansion. The German numbers were a disappointment, as the Manufacturing and Services PMIs missed their estimates. If the fragile Eurozone recovery is to gain strength, the German locomotive will have to be in full gear.

German economic indicators have been one of the few bright lights in the Eurozone economy, but the German locomotive is suffering from persistently low inflation. Last week, the German Producer Price Index came in at a flat 0.0%, short of the estimate of +0.2%. As well, German Wholesale Price Index posted a decline of 0.1%, its fourth drop in five releases. Mario Draghi continues to insist that there is no inflation problem in the Eurozone, but the markets may not share his optimism, as Eurozone inflation indicators continue to look listless.

Last week's FOMC meeting, the first with Janet Yellen as Fed chair, was dramatic. The decision to trim QE by another $10 billion was widely expected, but her comments at the follow-up press conference gave the dollar a big boost against its major rivals. Yellen said that the Fed was on track to wind up QE in the fall, and could start to raise interest rates six months later. This is a more aggressive approach towards higher rates than the markets had expected, and the dollar responded by posting strong against the euro.

EUR/USD 1.3813 H: 1.3847 L: 1.3804