Promise of Stimulus Helps Steady the Euro

Market Drivers August 19, 2019
EUR rebounds to 1,1100 onn German stimulus talk
Risk trades better
Nikkei 0.71% Dax 0.84%
UST 10Y 1.58%
Oil $55/bbl
Gold $1507/oz
BTCUSD $10750

Europe and Asia:
EUR CPI

North America:
No Data

FX markets were steady at the start of the trading week with risk assets bid up slightly as equities posted nearly 1% gains in Japan and Europe.

With economic calendar essentially barren and no new headlines to drive trade most of the majors remained in steady ranges but EURUSD continued its recovery trading above the 1.1100 figure in morning London dealing after Gernan officials confirmed Friday’s reports that the government would be willing to engage in fiscal stimulus in case of a serious economic slowdown.

German Finance Minister Olaf Scholz said on Sunday, that Berlin could make available up to 50 billion euros of extra spending in case of a slowdown. While the figure is relatively modest, it is the first sign that the notoriously frugal German policymakers are finally starting to understand the need for action as Europe’s largest economy is coming dangerously close to tipping into a recession.

This week’s most-watched eco data will be on Thursday when market gets a peak look at the flash PMIs in the EZ. If the numbers show further deterioration the need for stimulus will become more urgent but in the meantime, just the promise of possible action has provided a boost to the EURUSD which continues to hold above the key 1,1000 support level for now.

With no eco releases or major events scheduled until the second half of the week, trading could remain quiet for the rest of the day with dollar giving up some of last week’s gains as markets rebalance ahead of Jackson Hole symposium at the end of the week.