Today is Sun, November 19, 2017 13:21:45 GMT
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Contributors Forex: Euro Vulnerable to Downside Surprise on German CPI Data

Talking Points:

  • Euro at Risk if German CPI Miss Prompts ECB Stimulus Expansion Bets
  • Markets Overlook Strong Set of German Unemployment Data as Expected
  • US Dollar Volatility Risk Favors Upside as Markets Await 4Q GDP Data

The preliminary set of January’s German CPI figures headlines the economic calendar in European hours. Expectations call for the headline year-on-year inflation rate to rise to 1.5 percent, marking the highest reading since August.

Leading PMI data from Markit Economics estimated the price growth rate at a four-month low however, opening the door for a downside surprise. Such an outcome is likely to bode ill for the Euro amid speculation about an expansion of ECB stimulus and we remain short EURUSD. A better-than-expected German Unemployment report produced next to no response from the single currency, as expected.

Later in the day, the spotlight turns to the first estimate of the fourth-quarter US GDP print. Economic news-flow has gradually deteriorated relative to expectations in recent weeks (according to data from Citigroup), with notable miss on December’s Nonfarm Payrolls print.

A similar pattern is expected on the GDP front: the year-on-year growth rate is seen slowing to 3.2 percent from 4.1 percent recorded in the third quarter.A late-2013 soft patch in the US recovery clearly didn’t prompt the Fed to slow the pace of QE reduction, so a print in line with forecasts is unlikely to offer fresh fodder for US Dollar sellers. On the other hand, an upside surprise would mark a departure from recent dynamics and has scope to push the greenback higher.

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