EUR/USD: Euro Firm as Markets Eye Draghi Testimony

EUR/USD has posted slight gains on Monday, as the pair trades in the low-1.36 range in the European session. Monday has a very light schedule. In the Eurozone, German Industrial Production posted its sharpest decline in two years. As well, ECB Mario Draghi will testify at the Committee on Economic and Monetary Affairs of the European Parliament. There are no US releases to start off the week.

In the US, employment data continues to impress. Last week, Unemployment Claims dropped to 304 thousand, well below the estimate of 316 thousand. Employment numbers for June looked sharp, led by a jump in Nonfarm Payrolls and a drop in the unemployment rate. The strong employment numbers have increased speculation about an interest rate hike by the Federal Reserve, and remarks by Fed policymakers will be closely scrutinized as the markets look for clues as to the timing of any rate moves.

The Federal Reserve minutes did not shed much light on when the Fed plans to raise interest rates, but policymakers did agree to wind up the QE scheme by October. The asset purchase program flooded the economy with over $2 trillion, and the Fed has been steadily reducing the program since last December. Winding down QE, which currently stands at $45 billion/month, will require several more tapers by the Fed, but that shouldn't pose a problem, given the solid employment data the economy has been churning out.

The ECB cut interest rates in June, hoping to inject some life into growth and inflation levels. So far, the results have been less than impressive. On Monday, German Industrial Production plunged 1.2%, and last week's manufacturing numbers out of Germany, Italy and France were dismal, with all three posting sharp declines. Inflation numbers have also remained weak. French CPI posted a flat reading of 0.3%, missing the estimate of 0.2%. In Germany, Final CPI came in at 0.3%, matching the forecast. German WPI slipped by 0.1%, its second straight decline. A strong euro has not helped matters, as it makes European exports more expensive and weighs on growth. If the trend of weak figures continues, the ECB will face more pressure to take action at its next policy meeting.

EUR/USD 1.3629 H: 1.3640 L: 1.3598