The euro has posted slight gains in the Wednesday session, adding to sharp gains on Tuesday. Currently, EUR/USD is trading at 1.1370. On the release front, ECB President Mario Draghi will speak again before the ECB Forum of Central Bankers. Will Draghi perform an encore and push the euro even higher? In the US, today’s key release is Pending Home Sales, which is expected to gain 0.9%. On Thursday, Germany releases Preliminary CPI and the US will publish Final GDP and unemployment claims.
The euro sparkled on Tuesday, jumping 1.8%. EUR/USD is closing in on the 1.14 line, and hit a high of 1.1388 earlier in the day, its highest level in two months. The currency jumped as investors gave a thumbs up to Mario Draghi, who addressed the ECB Forum. Draghi acknowledged that economic indicators were showing a broadening recovery in the eurozone, and put a positive spin on inflation, as he noted that ‘deflationary forces have been replaced by reflationary ones’. Draghi defended the bank’s loose accommodative policy, saying that it had pushed inflation higher, but stimulus was needed until inflation becomes ‘durable and self-sustaining’. Draghi’s message to the markets and his critics is that ‘we’re on the right path, but please show some patience’. Germany, the eurozone’s largest economy, wants to see a tighter policy, which is a better fit for the vibrant German economy. Clearly however, the ECB under Draghi’s stewardship has no intentions of altering current policy until inflation moves closer to the ECB’s target of 2 percent.
Investors are casting a nervous glance at Thursday, as the US releases Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the same estimate for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Last week, it was the turn of construction numbers to disappoint, as Housing Starts and Building Permits both missed expectations. Consumer spending has also been softer than expected, and if Final GDP falls short of the modest estimate of 1.2%, the dollar could respond with losses.
