The euro has edged upwards in the Friday session, as EUR/USD trades at 1.0890. The week wraps up with a host of events in the eurozone and US, so traders should be prepared for some movement from the pair. In the eurozone, German Retail Sales dropped to 0.1%, matching the estimate. Later in the day, the eurozone releases CPI Flash Estimate, with an estimate of 1.8%. The US will publish Advance GDP, with a forecast of 1.3%. As well, the UoM Consumer Sentiment report is expected to improve to 98.1 points.
The euro dipped on Thursday after the ECB policy meeting, as the rate statement and comments from Mario Draghi were more dovish than the markets would have liked. Draghi stated that policymakers did not discuss tightening monetary policy. The current ultra-loose policy, which includes interest rates at 0.00% and a quantitative easing program of EUR 60 billion/mth, has been in place since 2008. Draghi acknowledged more favorable economic conditions, noting the eurozone economy had improved and downside risks had decreased. There had been speculation that the ECB might taper or bring forward its asset-purchase program, or which runs until December. The ECB holds its next meeting in June, and the markets will again be looking for some tightening from the ECB.
The French presidential election may be in the daily headlines, but the euro has not showed significant movement this week. Voters will be back at the ballot boxes next Sunday, and the markets have priced in a victory by Emmanuel Macron over Marie Le Pen. A major reason for the market’s calmness is that opinion polls before the first round were fairly accurate, and correctly forecast that Macron would win 24% of the vote and Le Pen 22%, with both advancing to the May 7 runoff. The markets are thus relying on the polls for the second round, which show Macron with a comfortable lead of 60-40. Le Pen is a heavy underdog, compounded by the fact that some candidates from the first round as well as former President Francois Hollande have publicly called for voters to support Macron. Still, a strong showing by Le Pen on Sunday would show that her strident anti-EU stance has wide popularity, and this could sour investor sentiment and send the euro downwards.
One of President Trump’s most important campaign platforms was overhauling the US tax code. Trump finally announced his long-awaited tax plan on Wednesday. The proposal calls for sharp reductions for both individuals and corporations. The plan calls for three tax brackets for individuals – 10%, 25% and 35%. The corporate sector would also see significant tax relief, with the corporate tax rate dropping from 35% to 15%, and the tax on multinationals’ overseas profits lowered from 35% to 10%. However, any tax reform proposals from the White House will require a stamp of approval from Congress, so Trump’s proposal should be viewed as a blueprint that is a long way off from becoming law. Trump’s proposal was short on details, although government officials are praising it as one of the largest tax cuts and broadest overhauls of the tax system in history. There hasn’t been much reaction to the Trump tax plan from the currency markets.
