ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)


EUR/USD has posted considerable losses on Tuesday, erasing the gains which marked the Monday session. The pair is trading slightly above the 1.12 level. On the release front, Eurozone Employment Change Industrial Production. Both indicators beat their estimates. In the US, today’s highlights are Core Retail Sales and Retail Sales. The estimate for both reports stands at 0.4%.

All eyes are on the Federal Reserve’s policy meeting, which will conclude with a rate statement on Wednesday. The markets have written off a rate hike in June, while a July move remains unlikely, according to the CME Group. The chances of a June hike are just 1.9% compared to a 26.3% in May. The chances of a July hike is 17.9%, compared to 43.2% in May. The sharp drop in market sentiment for a rate hike can be attributed to the dismal US Nonfarm Payrolls report as well as some back pedaling by Fed over the past few weeks. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in “the coming months”. Since then, Yellen has sounded more cautious, and in a recent speech she was careful to avoid a time frame regarding a rate hike. To be fair, the Fed has made a strong effort to communicate clearly with the markets, and has stated that the timing of a rate hike would be data-dependent. With the US economy posting some mixed numbers and inflation levels remaining at low levels, it should not come as a surprise that the Fed may stay on the sidelines until September or even later. Although it’s extremely unlikely that the Fed will make a move in June, the markets will be carefully monitoring the rate statement, looking for some clues regarding a July rate hike.

ECB President Mario Draghi often puts a positive spin on the Eurozone’s trouble, but he didn’t mince words last week at the Brussels Economic Forum. Draghi said that years of poor growth had hurt the bloc’s productivity and warned that urgent action was needed in order to prevent the economy suffering permanent damage. Draghi said that monetary policy was not enough and structural reform was urgently needed. The ECB head has often noted that the central bank cannot fix the Eurozone economy solely with monetary policy and governments must cooperate and implement structural reform. Although growth has improved slightly in the first quarter, deflation remains a serious concern, as inflation levels have failed to respond to aggressive action by the ECB, which earlier in the year lowered the benchmark rate to 0.00% and increased the QE program to EUR 80 billion/mth.  Last week, the ECB implemented a corporate sector asset purchasing program, aimed at bolstering inflation. Analysts expect the ECB to buy between between €5 billion and €10 billion each month in corporate debt. Yields on European corporate bonds have tumbled in response, and this has pushed the euro lower.