The euro continues to have an uneventful week. In the Wednesday session, EUR/USD is trading at 1.1743, down 0.20% on the day. On the release front, there are no major indicators out of the eurozone. Earlier in the day, ECB President Mario Draghi spoke at an ECB conference in Frankfurt. Draghi discussed structural reforms in the eurozone economy, but did not address monetary policy. In the US, the focus will be on housing data. Building Permits is expected to slow to 1.25 million, and Housing Starts are forecast to remain unchanged at 1.18 million. On Thursday, the US releases unemployment claims and the Philly Fed Manufacturing Index.
Investors are optimistic about economic conditions in Germany, but the markets expected a bit too much, as German ZEW Economic Sentiment for October missed expectations. Analysts had forecast a surge in investor confidence, which did not materialize. Still, the indicator did improve slightly to 17.6 points, marking a 4-month high. Eurozone ZEW Economic Sentiment disappointed, slowing to 26.7 and also missing expectations. On the inflation front, there were no surprises as Eurozone Final CPI remained steady at 1.5 percent. With the rebound of the eurozone in 2017, inflation has moved higher, but still remains below the ECB’s target of around 2 percent.
The game of brinkmanship between the Spanish and Catalan governments continues, as a Thursday deadline looms. The Spanish has given Catalan President, Carles Puigdemont until Thursday to recant his declaration of independence. If Puigdemont refuses, Madrid has threatened to trigger Article 155 of the Spanish constitution, which would allow the central government to disband the Catalan parliament and impose direct rule. However, this clause has never been used, and could set off a violent reaction in Catalonia, with emotions already at a fever pitch. The deepening constitutional crisis has led hundreds of companies to start leaving Catalonia, and the Standard and Poor’s rating agency has said that the region could face a recession if the situation is not resolve. Investment projects are at a standstill in the region, and if the situation worsens, investors could get nervous and send the euro lower.
