EUR/USD has lost ground in Wednesday, as the pair trades at 1.0550. On the release front, Eurozone Trade Balance jumped to EUR 24.5B, beating the estimate of EUR 22.5B. It’s a busy day in the US, which will release retail sales and CPI reports, and Yellen will continue her testimony about the semiannual Monetary Policy Report before Congress. On Thursday, the US releases three key events – Building Permits, Philly Fed Manufacturing Index and unemployment claims.
The euro continues to head lower, as EUR/USD has dropped 2.3 percent since February 3. The euro continued to lose ground following testimony from an upbeat Janet Yellen. The Fed chair testified before a Senate committee on Tuesday, and was surprisingly upfront about monetary policy, stating that she expected that the Fed would raise rates in the near future. Yellen stated that "waiting too long to remove accommodation would be unwise", referring to the re-hot labor market and expectations that inflation would reach the Fed’s target of 2 percent. Will the Fed opt to raise rates in March or in June? The markets will be looking for clues on the timing of a move, as Yellen continues her testimony on Thursday before the House Financial Services Committee.
The Eurozone has been showing signs of recovery, as growth and inflation numbers are higher. This is good news for the ECB, which can now focus on easing monetary policy. If the ECB feels that the economy will continue to march in the right direction, the bank could taper its asset-purchase program or raise interest rates. ECB head Mario Draghi will likely remain cautious, with Brexit and elections in France and Germany high on the agenda. Still, if the eurozone economy continues to grow and inflation levels move higher, we could see the ECB change its monetary stance later in the year. The ECB hold its next policy meeting on March 9, and if eurozone numbers continue to head upwards, there will be pressure to tighten monetary policy.
