EUR/USD moved by the drum of Draghi in a very exciting week: the wide array of measures was not enough to counter the end of new stimulus, at least for now. What’s next? Inflation data stands out this week. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The ECB met market expectations with a cut of the deposit rate by 10bp to -0.40% but certainly went further with a cut of the lending rate to 0%, an expansion of QE by €20 billion to €80 billion, new TLTROs and more lax bond buying rules. A drop of around 150 pips in EUR/USD lasted only an hour when he said that there is no need for further action and EUR/USD shot up, eventually ending the week on a higher footing. Was it a short squeeze? Will markets realize that the stimulus package was huge? Or have markets lost faith in the power of the ECB and central banks in general?
Updates:
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
Industrial Production: Monday, 10:00 .Euro-zone industrial output dropped by 1% in December in a disappointing outcome. After Germany’s surprisingly strong figure for January, a bounce is also on the cards for the all-European figure now: 1.7% is predicted.
French Final CPI: Tuesday, 7:45. Prices in the second largest economy rose by 0.2%. This number will likely be confirmed now.
Employment Change: Tuesday, 10:00. While the figure is lagging (it is for Q4) it still provides a wide view on the labor market situation. A rise of 0.3% was recorded in Q3. Another rise is on the cards now: 0.2% for Q4.
CPI: Thursday, 10:00. According to the initial release, prices dropped 0.2% y/y in the headline figure and rose only 0.7% in core inflation. This certainly had its impact on the ECB. A confirmation is expected now. While the ECB decision is already behind us, a deterioration in inflation could open the door for more action, contradicting Draghi’s words.
Trade Balance: Thursday, 10:00. Germany’s exports keep the euro bid with a positive trade balance. After +21 billion in December, a similar number is on the cards for January. A surplus of 20.2 billion is expected.
German PPI: Friday, 7:00. Producer prices have fallen for quite some time. A drop of 0.7% was recorded last time, and yet another drop is likely now: -0.2%.
