EUR/USD rose to the 1.18 line on Friday, and is showing little movement to start off the week. In the Monday session,the pair is trading at 1.1797, down 0.21% on the day. On the release front, it’s a quiet start to the week. In the Eurozone the sole event is Industrial Production, which came in at -0.6%, missing the estimate of -0.4%. On Tuesday, Germany releases Preliminary GDP, and the US publishes retail sales reports.
The euro continues to trade at high levels, and last week marked a fifth consecutive winning week for the currency. Tensions between North Korea and the US remain high, but the prevalent sentiment in the markets is that a diplomatic solution will be found to end the crisis. European stock markets have started the week with considerable gains, and EUR/USD is subdued in the Monday session. Still, Donald Trump and Kim Jon-un are unpredictable leaders, and any move by either side could easily ratchet up tensions and unnerve investors. Donald Trump continues to deal with domestic problems as well, and the White House faced stinging criticism from both Republicans and Democrats, as Trump failed to single out white supremacists for the violence in Charlottsville, Virginia, where one person was killed at a demonstration against far-right marchers.
For months, the ECB has consistently said that will not begin winding down its asset purchases program until inflation rises, but last month, the bank appeared to change its tune. In July, the ECB said it would hold discussions on the quantitative easing (QE) scheme in “the autumn”, and analysts are split as to whether that means September or October. Either way, this means that the markets expect to hear an announcement regarding QE. The bank tapered QE earlier in 2017, from EUR 80 billion to 60 billion/mth, and there are calls to reduce this to EUR billion/mth. The ECB is scheduled to terminate the asset purchases program in December, and could start tapering in early 2018. The bloc’s economy is forecast to expand a healthy 2.0% this year, and the eurozone outperformed both the US and the UK in the first half of 2017. The sore point remains inflation, which is stuck at low levels, despite the ECB’s ultra-accommodative monetary policy. Another factor which policymakers must deal with is the ECB’s bloated balance sheet, which stands at more than EUR 2 trillion.
