German data tell the story: manufacturing sales increased 4.1% annually (expected 1.2%) and industrial production rose 3.4% monthly (expected 1.8%. Demand for European goods and services is and will remain strong.
This could force the European Central Bank to ‘normalize’ monetary policy, which could push the EUR/USD above its current 1.20 mark – which, in turn, would threaten exports. ECB President Mario Draghi is trying to walk the tightrope, with dovish comments that policy accommodation remains necessary. However, the ECB has upped its growth and inflation forecasts. Quantitative easing could end in 2018, sooner than the market anticipates. We remain constructive on the EU recovery story and see EUR/USD dips as an opportunity to reload longs.
By Peter Rosenstreich