Wednesday, January 7, 2015

EUR/USD has posted slight losses on Wednesday

EUR/USD has posted slight losses on Wednesday trading in the mid-1.18 range. The euro has lost 150 points so far this week, as the common currency continues its move downward. On the release front, it’s a busy schedule in the Eurozone and in the US. Eurozone CPI disappointed with a decline of 0.2%. German data was positive, as Retail Sales jumped 1.0% and Unemployment Claims dropped by 27 thousand. In the US, today’s key releases are the ADP Nonfarm Payrolls and Trade Balance. As well, the Federal Reserve will release the minutes of its last policy meeting.

Eurozone inflation numbers remain mired at low levels. Eurozone CPI dipped to -0.2% in December, its first decline since September 2009. German Preliminary CPI remained stuck at 0.0% in December, unchanged from the November report. This missed the very modest estimate of 0.1%. The readings come at a crucial time, with the ECB holding a policy meeting on January 22. With the threat of deflation hanging over the Eurozone like a dark cloud, the ECB could respond with quantitative easing, which would mean buying large amounts of Eurozone bonds. QE worked well in the US, but the Federal Reserve was calling the shots and was able to implement and then taper QE as it pleased. It’s a far different story in Europe, as the powerful German Bundesbank has voiced its opposition to such a move and ECB head Mario Draghi will find it difficult to take such a dramatic step without a strong consensus. If the ECB does pull the ECB trigger, the shaky euro is likely to fall even further early in 2015.