Euro remains steady above 1.1610 despite weak German Industrial Production data

EUR/USD flatlines just above 1.1610, after retreating from the 1.1640 area on Friday.
German Industrial Production declined against expectations in July.
US Nonfarm Payrolls beat forecasts on Friday, but investors await Friday's CPI data to assess the chances of a Fed rate hike next week.

Guillermo Alcala FXStreet

The Euro (EUR) trades flat against the US Dollar (USD) on Monday, hovering just above 1.1610 at the European session opening, following a reversal from the 1.1640 area last week. German Industrial Production data has not been particularly supportive, and rising Oil prices amid flaring tensions in the Middle East put additional pressure on the Euro, but USD rallies remain capped so far, with US markets closed for a bank holiday.

Data from Germany showed that Industrial Production fell 1.1% in July, against market expectations of a 0.3% increase, while June's reading was revised down to 0% from the 0.2% rise previously estimated. Year-over-year, German factory output accelerated its decline to a 1.6% contraction from -0.5% in June.

Later on Monday, the Eurozone's final Gross Domestic Product (GDP) is expected to confirm that the economy grew at a 0.4% pace in the second quarter on the year and 1.1% from the same period last year.

In the Eurozone, the highlight this week is the European Central Bank’s (ECB) monetary policy decision due on Thursday. The bank will, all but certain, raise its benchmark interest rate to 2.25%, but investors will be attentive to ECB President Christine Lagarde’s comments for hints of another rate hike before the end of the year.

US CPI in focus this week

The US Dollar got a boost from the US Nonfarm Payrolls (NFP) figures on Friday, which showed a 162K increase in net employment in August, almost three times the 56K gain forecasted by market analysts. Investors are now awaiting US Consumer Price Index figures, due on Friday, to confirm that the Federal Reserve (Fed) will hike interest rates at next week’s meeting.

Strategists at Brown Brothers Harriman, however, argue that even if a September Fed move becomes “a done deal,” they “doubt USD will make new cyclical highs,” as tightening by other major central banks is limiting policy divergence.

BBH experts note that the ECB is “widely expected to deliver its second 25bps increase of the year on Thursday," and they add that “risks around the US August CPI print are finely balanced, setting the stage for an exceptionally volatile market reaction.”

In the US, markets will be closed on Monday amid the Labor Day bank holiday, which will likely weigh on market volatility.

Economic Indicator

Industrial Production s.a. (MoM)

The Industrial Production released by the Statistisches Bundesamt Deutschland measures outputs of the German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).

Economic Indicator

Gross Domestic Product s.a. (QoQ)

The Gross Domestic Product (GDP), released by Eurostat on a quarterly basis, is a measure of the total value of all goods and services produced in the Eurozone during a certain period of time. The GDP and its main aggregates are among the most significant indicators of the state of any economy. The QoQ reading compares economic activity in the reference quarter to the previous quarter. Generally, a rise in this indicator is bullish for the Euro (EUR), while a low reading is seen as bearish.

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