It’s been an uneventful week for EUR/USD, which continues to trade between 1.06 and 1.07. Currently, the pair is trading at 1.0640. On the release front, German indicators continue to impress, as Industrial Trade and Trade Balance both beat expectations. In the US, employment numbers will be in focus, highlighted by Nonfarm Payrolls. The markets are braced for a weak reading of 174 thousand. Traders should be prepared for movement from EUR/USD around the release time of the employment numbers, at the start of the North American session.
The ECB plans to hold the course on monetary policy, according to the minutes of its March policy meeting. The minutes indicated that the ECB plans to maintain its monetary policy, with no changes to interest rate levels or the central bank’s asset-purchase scheme. The minutes added that there was ‘considerable risk surrounding the economic outlook and the robustness of inflation convergence’, which warranted maintaining the downward bias on interest rates. Essentially, the ECB has promised ‘more of the same’, with the asset-purchase scheme scheduled to remain in place until December. The powerful German central bank is not of the same view, however, as it would like to see tighter monetary policy, given the improvement in the economic data and higher inflation levels. March PMI reports impressed, as German and Eurozone Services and Manufacturing PMIs pointed to expansion. If the Eurozone economy continues to improve, we can expect the calls in favor of higher rates to get louder.
There were no surprises from the Federal Reserve policy minutes, which were released on Wednesday. The minutes had a slightly hawkish tone, as policymakers noted upside risk to the US economy. However, policymakers remain divided on whether inflation will rise to the Fed target of 2.0% percent. The minutes also stated FOMC members were in favor of taking steps to trim the $4.5 trillion balance sheet, which has ballooned since the Fed implemented its aggressive quantitative easing program back in 2008. However, the Fed is unlikely to make any moves on this front till later in the year, as President Trump’s fiscal policy remains a big question mark. So what’s next for the Federal Reserve? According to the CME’s Fed Watch, the odds of a rate hike at the May meeting are just 5 percent, while the likelihood of a rate hike in June stand at 63 percent.
