EUR/USD has started the new trading week with gains. Currently, the pair is trading at 1.1912, up 0.44% on the day. With US banks closed for Labor Day, traders can expect an uneventful day from EUR/USD. On the release front, there are no major events in the eurozone. Eurozone Sentix Investor Confidence climbed to 28.2, above the forecast of 27.4 points. Eurozone PPI continues to improve, coming in at 0.0%, still shy of the estimate of 0.1%.
The eurozone economy continues to pick up speed, as economic indicators point upwards. The Sentix Investor Confidence rose in September, as investors and analysts like what they see from the euro-area economy. Germany, the largest economy in the bloc, continues to look very strong, but other countries such as France and Italy have also posted better numbers in 2017. In August, the German and eurozone manufacturing sectors continued to show strong expansion, buoyed by domestic demand as well as a stronger global economy which has increased demand for German and European exports. The stronger economy has raised speculation that the ECB will finally taper its ultra-accommodative monetary policy. The bank’s asset purchases program is scheduled to end in December, and analysts expect the ECB to withdraw stimulus in early 2018. Still, the ECB has not provided much guidance as to its plans. ECB President Mario Draghi was mum on monetary policy at last week’s meeting of central bankers at Jackson Hole, following the lead of Federal Reserve Chair Janet Yellen. However, the ECB head will not get another free pass this week, as the ECB holds its next policy meeting on Thursday. Any discussion about tapering the ECB’s asset purchase program could have a strong effect on the euro’s movement.
US employment numbers were unexpectedly soft on Friday, but the dollar shrugged off the weak numbers and managed to post gains against the euro. Nonfarm employment change slowed to 156 thousand, well below the estimate of 180 thousand. This marked a 3-month low. However, with the US labor market still close to capacity (the unemployment rate is just 4.4%), the markets can be forgiving about a softer nonfarm payroll report. Wage growth, or the lack of it, is a more pressing concern. Average Hourly Earnings posted a small gain of 0.1%, missing the estimate of 0.2%. This was down from 0.3% in the previous report, and matched the weakest gain seen in 2017. The lack of wage gains has impacted on inflation levels, which remain well below the Fed’s inflation target of 2%. Soft inflation has dampened enthusiasm for a final rate hike in 2o17, with the odds of December increase pegged at just 37%.
