The euro continues to gain ground in the Tuesday session, and EUR/USD is currently trading at 1.1040. On the release front, Eurozone Flash GDP climbed 0.5%, matching the forecast. German ZEW Economic Sentiment disappointed, as the reading of 20.6 fell short of the forecast of 22.3 points, There was better news from Eurozone ZEW Economic Sentiment, which jumped to 35.1, easily beating the forecast of 29.1 points. In the US, today’s key events are Building Permits and Housing Starts. On Wednesday, the eurozone releases Final CPI, which is expected to rise to 1.9%.
Market forecasts for Eurozone growth were on the money, as Flash GDP came in at 0.6% in the first quarter of 2017. This figure was slightly higher than Preliminary GDP back in April, which showed a gain of 0.5%. The eurozone continues to show improved numbers in 2017, boosted in no small part by the German economy, which also expanded 0.6% in the first quarter. The well-respected ZEW Economic Sentiment surveys, which gauge optimism among investors and analysts, were a mixed bag for May. The German indicator improved to 20.6, short of expectations. What was more surprising was the unexpected jump from the Eurozone indicator, which improved to 35.1, its strongest level in almost two years. With the eurozone showing stronger growth, has inflation kept up? We’ll get an indication on Wednesday, with the release of Eurozone Final CPI, which is expected to rise to 1.9%. Stronger inflation levels will increase pressure on the ECB to consider tapering its ultra-loose monetary policy. Germany, for one, is finding that ultra-low interest rates is hampering growth, and wants Brussels to adopt a tighter monetary policy.
Washington remains abuzz over Comeygate, which has put the Trump administration on the defensive. There was more bad news for President Trump on Tuesday, with a report in the Washington Post that Trump had shared confidential intelligence reports with Russia’s foreign minister at a meeting last week. The White House has denied the report, but clearly damage control remains a top priority for Trump, and the euro has taken advantage, pushing past 1.10, as EUR/USD is trading at 6-month highs. The markets are concerned that Trump will be so busy trying to put out political firestorms, that his agenda of increased fiscal spending and tax reform will stall. This could send the dollar to lower levels as investors look for alternatives to investing in dollar assets
