Week in FX Europe – Germany and the UK Seed European Optimism

EUR/USD had a topsy-turvy week. Started the week at 1.3336 and in early Wednesday trading shot up to 1.3450 just to slowly deflate back to 1.3350 by Friday afternoon. Germany posted hopeful GDP growth numbers, consumer confidence has reached two year highs. The United Kingdom also posted impressive numbers this week, specially considering it narrowly avoided a triple dip recession. Britain’s GDP growth matched Germany’s 0.7 percent. Exports and employment are the biggest improvements driving the UK recovery which could trigger a raise in interest rates sooner than the Bank of England three year forecast.

Fed Tapering Continues to Drive the Market
The FOMC minutes were released in the US. Published two weeks after the FOMC statement the minutes brought very little insight to the market. The Fed continues to push for tapering to reduce the costs associated with the bond buying program. However the fear that the economy might not be ready is expressed by wanting to see further proof of a sustained recovery in the US economy. Even an uneventful FOMC minutes release where nothing new was said managed to sap the EUR upward trend of its momentum.

Italian Coalition in Danger
Italy’s fragile political coalition could collapse given the latest chapter in the Berlusconi saga. When the courts decided to fast track his trial it was as seen as a political move. Berlusconi argues that If the case was allowed to continue on a regular case timeline some of this crimes would be out of the statute of limitations. The fact is that he controls a sizeable portion of the votes that make up the coalition and his party is accusing the government of a politically motivated decision. If Berlusconi is banned from political life, he could decide to implode the coalition in retaliation. The Italian economy is far from achieving quarterly growth, but it has managed to reduce the speed of contraction.

WEEK AHEAD

* USD Durable Goods Orders
* USD Consumer Confidence
* EUR German Unemployment Change
* EUR German Consumer Price Index –
* JPY National Consumer Price Index
* EUR Euro-Zone Consumer Price Index
* CAD Gross Domestic Product (YoY)

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza