Draghi under pressure to boost flagging Eurozone economy
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The Eurozone economy has started the week by taking centre stage with the release of disappointing inflation data showing a slowdown in the region’s economy. The flash CPI reading, a key indicator of the health of the economy, decreased from February’s reading of 0.7% to 0.5%, which now puts substantial pressure on European Central Bank (ECB) President Mario Draghi to instigate new measures to boost the flagging economy.
The ECB is due to make its latest monetary policy decision on Thursday – the outcome likely to be important for traders with volatility expected during the announcement and Draghi’s subsequent press conference. While the response to persistent negative inflation data would normally be to instigate a reduction of interest rates, the benchmark Eurozone interest rate is already at a historically low rate of 0.25% so there is not much room for Draghi to make further cuts. Instead, we may see him announce further monetary stimulus to try and boost the economy. However, if Draghi does announce a surprise interest rate cut it will likely cause a big jump in the euro.
The market is also eagerly awaiting the latest Non-Farm Payrolls (NFP) employment data from the US which is scheduled for Friday, along with the latest unemployment rate. The NFP data is considered the most accurate indicator of the health of the US economy and, as a result, it is a very influential news release with volatility in USD pairs expected during and shortly after the announcement.
This month’s reading is expected to show around 196,000 new jobs created, an increase on last month’s figure of 175,000. If the number is over 190,000, it is likely that Federal Reserve Chairwoman Janet Yellen will continue the tapering of the stimulus programme at the current rate. However, should the data come in lower than expected it would be a worrying sign for the US recovery and Yellen will likely have to take further action to maintain the current level of stimulus. The unemployment rate will also play a key role in determining monetary policy with any substantial movement from February’s rate of 6.7% likely to help define Yellen’s future policy. The EUR/USD pivot point is 1.3754 with resistance levels at 1.3763, 1.3772 and 1.3781; and support levels at 1.3745, 1.3736 and 1.3727.
Friday will also see the release of Canada’s unemployment rate and the net change in employment – both of which may generate volatility in USD/CAD. The pivot point is 1.1056, with resistance at 1.1061, 1.1071 and 1.1076; and supports at 1.1046, 1.1041 and 1.1031.
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