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Euro remains elevated amid weak German factory orders

H.S. Borji
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Europe’s common currency remained elevated Wednesday amid a spate of disappointing data from Germany and France.

German factory orders declined 2.8 percent in March, following a gain of 0.9 percent the prior month, the Federal Statistics Office reported today. Economists forecast a gain of 0.3 percent. Year-on-year, factory orders rose 1.5 percent, following an annualized gain of 6.5 percent in February.

In France, factory data also disappointed the markets. French industrial output declined 0.7 percent in March, following a gain of 0.1 percent the prior month, the Institut national de la statistique et des etudes economiques reported today. Economists forecast a gain of 0.2 percent.

France’s trade deficit widened in March, from €-3.8 billion to €-4.9 billion. French exports increased from €36.2 billion to €36.4 billion, and imports increased from €39.6 billion to €41.3 billion.

In US data, mortgage applications rose 5.3 percent last week, the Mortgage Bankers Association reported today.

Productivity of US workers fell 1.7 percent in the first quarter, following a gain of 2.3 percent over the previous three month period, the Labor Department reported today. Unit labour costs, which measure the total cost of employing the workforce, increased 4.2 percent in the first quarter, official data showed.

The EURUSD pair traded within a tight range of 1.3912-1.3937, consolidating in the middle at 1.3928. The euro took advantage of the US dollar’s broad weakness Tuesday to climb to seven-week highs. Initial support is likely found at 1.3899, followed by 1.3864 and 1.3830. On the upside, technical resistance is found at 1.3980, 1.4015 and 1.4050.

In other trading, the euro was treading water against the British pound. The EURGBP consolidated at 0.9209, relatively unchanged from the previous close. Initial support is likely found at 0.8182. On the upside, technical resistance is found at 0.8218.

Monetary policy takes centre stage in the back half of the week. Federal Reserve Chair Janet Yellen will testify before the Joint Economic Committee of US Congress later today. Investors will use her testimony to determine the central bank’s outlook on interest rates.

The European Central Bank will coalesce in Brussels on Thursday to discuss monetary policy and set the interest rate. Stubbornly low inflation has posed a significant problem for policymakers, who are considering all options to shore up declining consumer prices. April marked the seventh consecutive month consumer inflation was below 1 percent.

Deflationary pressures forced the ECB to slash interest rates to record lows in November. However, inflation is still at less than half of the central bank’s target. ECB officials are reportedly considering Federal Reserve-style quantitative easing and a negative deposit rate to shore up consumer prices. According to experts, another rate cut from 0.25 percent to, say, 0.1 percent, would have only a minimal effect.

The ECB is likely to hold the interest rate at 0.25 percent at tomorrow’s meetings, according to a consensus of market analysts.

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