EUR/USD is almost unchanged on Monday, as the pair trades at 1.0630. It’s a very quiet day on the release front. German inflation improved, as WPI came in at 0.8%, above the forecast of 0.3%. There are no US events on the schedule. On Tuesday, Germany releases GDP and consumer confidence numbers, while the Eurozone also releases GDP. The US will release PPI and Janet Yellen will testify before Congress.
The eurozone economy continues to improve. Growth has been steady and inflation, which has languished at low levels for years, is higher. However, there are black clouds on the horizon. There is increasing uneasiness in the markets as populist, far-right parties are gaining support in France, the Netherlands and Germany, threatening the old order. First up is France – the country goes to the polls in April, and Marie Le Pen, the far-right candidate in the ring, is leading in the polls ahead of the first round of voting. Le Pen wants to take France out of the Eurozone and has promised a referendum on France’s membership out of the European Union. Although Le Pen is not expected to win the presidency, neither was Donald Trump. Le Pen has enthusiastically endorsed Trump’s anti-establishment message and if she does well in the polls, the euro could be headed to lower levels.
Across the Channel, British Prime Minister Theresa May is preparing to invoke Article 50 and commence negotiations with the EU over Brtain’s departure by the end of March. May has said that a deal could be reached in two years, but on Thursday, the head of the European Commission in Britain, Jacqueline Minor, countered that the timeline was unrealistic, suggesting that an "implementational" phase would be needed. The European Union doesn’t want to encourage other members to exit, so it has no reason to go out of its way to accommodate Britain, and Minor has warned that the Brexit negotiations could get "nasty".
Donald Trump continues to entangle himself in controversy, with US allies, the media and the Supreme Court. On Thursday, Trump said that the administration was working on a "phenomenal" tax plan, which would be released in a few weeks, although he gave no details. Trump’s plan is expected to lower taxes for both corporations and individuals, although tax reform promises to be a slow and daunting task, as changes to the US tax code can only be made by Congress. Still, the markets are hungry for any movement in this direction, and the dollar could get a strong boost once Trump outlines his tax agenda.
