Data and Politics Drive Euro Higher
Morning mid-market rates – The majors
November 27th: Highlights
- Merkel Close to a solution
- German Business Confidence at an all-time high
- Tusk tells May there is a lot of work to do before Stage Two start
Social Democrat U-turn to rescue Merkel
The single currency reached 1.1951, its highest level since late September before falling back to close at 1.1930. Any further gains may be hard to come by as Friday’s move was in a holiday thinned market and there are strong resistance levels on the approach to the psychologically important 1.2000 level.
A Grand Coalition between Merkel’s CDU/CSU alliance and the Social Democratic SPD Party had formed the basis for Government in Germany during much of Merkel’s time in office. However, in the runup to the September election, their leader decided that they wanted to be judged on their own merits and announced that there would be no Grand Coalition going forward.
Pressure has been brought to bear upon Martin Schulz, the Leader of the SDP to return to Government to avert the prospect of a minority Government or fresh elections.
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German Data strong but…
The release of this data on Friday showed that confidence is at a record high as low inflation growth produces an economic miracle for the Eurozone’s largest economy.
Traders were prepared to use Germany as a proxy for the entire Eurozone and bought the euro accordingly. However, the European Central Bank is very clear in its view that monetary policy needs to be suited to the entire region and while they will be pleased at the level of confidence and activity in the German economy it will have no bearing on their view regarding either a rate hike or a more rapid withdrawal of extraordinary support. Mario Draghi the ECB President has been very clear in his assertion that the growth being seen in the weaker economies is still due to the presence of the Asset Purchase plan so, despite it being cut in half, it will remain in place until the end of 2018.
A slow week for data to be enlivened by Brexit
European Commission President Donald Tusk appeared a little more hawkish than his colleague Jean-Claude Juncker on Friday telling British Prime Minister Theresa May that there was still a great deal of work to be done and giving her an absolute deadline of December 4th to provide proposals for the three major points that need to be cleared before stage two of the talks can begin.
Versus a slightly weaker dollar the pound rose a little reaching 1.3360 although it drifted lower to close the week at 1.3330 and has started this week on the back foot falling to 1.3311.
The issue of the Irish border is likely to require some major consultations between Dublin, Belfast and Westminster as both sides in Ireland defend their position vehemently. Dublin has threatened to veto any agreement which leads to a closed border. There is also a “chicken and egg” situation developing as the EU say talks can’t move to discussing trade until the border question is resolved and U.K. Trade Minister Liam Fox commenting that until trade talks begin there can be no agreement on the Irish border.
This week’s events of note
The last “proper” week of the year. No major data all week but Brexit will continue to dominate together with the Political situation in Germany and the outlook for a rate hike in the U.S. As Friday is Dec 1, te employment report in the U.S. will be released on Dec 8Th. They don’t want to give away just how estimated the data is!
- U.S. : New Home sales – A very strong number in October unlikely to be repeated
- U.S. : House Prices – A measure of longer term inflation trends closely watched by the FOMC
- Eurozone: Consumer and Industrial Confidence – Consumer confidence has been a little weak but industrial confidence is soaring.
- Eurozone: Economic sentiment – Mario Draghi’s commitment to loose monetary policy is driving confidence higher
- Germany: Inflation – An unchanged 1.5% month on month should please the Bundesbank
- U.S. : GDP – 3% growth likely to be produced as overseas profits in Q3 are repatriated. Unlikely to have much effect on the Fed however.
- U.S. : Yellen speech – May shed some light on the proposed rate hike
- Germany: Unemployment – A bellwether for the Eurozone wide data. A read of less than 6% is positive.
- Eurozone: Inflation – A core rate of 0.9% YoY last month is likely to be repeated
- U.S. : Purchasing managers manufacturing survey – Purchasing managers manufacturing survey
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”