Forex: Euro to Look Past PMIs, German Jobs Data as ECB Looms Ahead

Talking Points:

  • Eurozone PMIs, German Jobs Figures Unlikely to Dislodge the Euro
  • British Pound May Not Find Volatility in Manufacturing PMI Print
  • Australian Dollar Little-Changed After Uneventful RBA Rate Decision

A seemingly busy docket of Eurozone economic activity data seems unlikely to produce meaningful direction cues for the Euro. The final revision of March’s Eurozone Manufacturing PMI reading is expected to confirm factory-sector activity growth slowed for a second consecutive month. Separately, Germany’s Unemployment report is forecast to show the ranks of the jobless shrank by 10,000 over the same period, marking the smallest drawdown in four months.

Both outcomes carry relatively limited implications for this week’s ECB rate decision and the monetary policy outlook in general considering Mario Draghi and company’s mandated focus on price stability. Indeed, if yesterday’s soft CPI data – an outcome that ought to have spoken directly to policy bets – was unable to shake the single currency, slowing cycle indicators are all the more likely to fall on deaf ears.

Similarly, a slight pullback on the UK Manufacturing PMI gauge will probably pass with little fanfare. The index is expected to nudge lower from 56.9 in February to 56.7 in March. UK economic data has increasingly outperformed relative to median forecasts over the past four months, which has supported an upward shift in the markets’ priced-in BOE monetary policy bets for the coming 12 months.

The rate-setting MPC committee has vocally talked down imminent rate hike possibilities and even adjusted its forward-guidance regime to telegraph as much last month. The resilience of the British Pound in spite of these headwinds suggests it is the longer-term outlook that is the object of speculation, in which case Sterling’s resilience will not be easily undermined by a nominal slowing of factory-sector activity in the short term (absent a dramatic deviation from the consensus view, of course).

A monetary policy announcement from the Reserve Bank of Australia proved to be a non-event, as expected. RBA Governor Glenn Stevens once again reiterated that “the most prudent course [going forward] is likely to be a period of stability in interest rates.” The Australian Dollar saw a bit of seesaw volatility in the immediate aftermath of the announcement but the currency is trading effectively flat against the majors heading into European hours.

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Asia Session

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Critical Levels

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Forex: Euro at Risk on German CPI, US Dollar Eyes Yellen Testimony

Talking Points:

  • Markets Likely to Look Past German Jobs Data, Focus on Flash CPI Print
  • Euro May Decline if Soft Inflation Figures Fuel ECB Stimulus Speculation
  • US Dollar May Extend Rebound on Pro-Taper Fed-Speak, Durables Data

The Euro is likely to look past another decline in German Unemployment to focus on the preliminary set of German CPI figures as the markets remain focused on the implications of continued disinflation for the trajectory of ECB monetary policy. The currency bloc’s largest economy is expected to see the ranks of the jobless shrink by 10,000 in February while the unemployment rate holds unchanged at 6.8 percent. The outcome carries relatively limited near-term implications for Mario Draghi and company on its own, whose narrow mandate keeps them focused on price stability.

On that front, forecasts calling for Germany’s headline year-on-year inflation rate to print at 1.3 percent in February – unchanged from the prior month – may surprise on the downside after leading Markit PMI data pointed to a six-month low in the pace of price growth. A soft print stands to amplify speculation about an expansion of ECB stimulus efforts, particularly after region-wide inflation expectations priced into bond yields (the so-called “breakeven rate”) fell to the lowest since June 2012 yesterday. Needless to say, such an outcome would bode ill for the single currency.

Elsewhere on the docket, Swiss GDP data is expected to show the economy added 0.4 percent in the fourth quarter. A print in line with expectations would mark a narrow deceleration from the 0.5 percent recorded in the three months through September but fall broadly in line with trend averages established over recent years. Furthermore, with the SNB forecasting a slow rise in headline inflation that keeps the baseline rate below 1 percent through 2015, central bank officials seem to have no near-term reason to adjust the stance of monetary policy in either the hawkish or the dovish direction. As such, the impact of a status-quo GDP print on the Swiss Franc is likely to be limited at best.

Later in the day, the spotlight returns to Fed Chair Janet Yellen as she testifies before the Senate Banking Committee. While the newly-minted central bank chief’s prepared remarks will be familiar from a similar sit-down in the House of Representatives two weeks ago, the Q&A session may carry some market-moving potential. Dallas Fed President Richard Fisher – a 2014 FOMC committee member and vocal hawk – is likewise due to hit the wires. Both policymakers are likely to toe a familiar line, arguing in support of continued gradual “tapering” of QE asset purchases. This coupled with a marginal improvement expected of January’s Durable Goods Orders data may continue to push the US Dollar higher after the currency secured its strongest gain in a month yesterday.

New to FX? START HERE!

Asia Session

European Session

Critical Levels

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Contact and follow Ilya on Twitter: @IlyaSpivak

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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