Is Europe back on the recovery path?

3 March, 2017

Dollar keeps its foothold and consolidates before the breakout of January resistance at the 102 level as Yellen is to deliver a speech at Chicago on Friday. American currency took advantage of hawkish FED policymakers pondering over the March hike. According to CME, March increase odds are now at 65% and hawkish FED chairman will top off to the market sentiments regarding the forthcoming meeting.

The Bond yields are rallying in the US, which is coming forth by the possible positive decision of policymakers’. At the same time, mixed economic readings failed to impact the Dollar game. Personal income rose faster in January while spending recovery fell short of estimates. Core PCE, major inflation indicator for the FED, rose by 1.7% in January, as it is just below the target level of 2%. Manufacturing activity in the US was good news for the bulls – as the index posted growth at 57.7 points versus the projected 56.2. The pickup suggests a reaction to Trump’s efforts in protecting and encouraging the domestic manufacturing.

The British Pound sunk as political risks are exacerbated with the concerns the Bank of England will delay the rate hike as fundamental data suggest weaker patterns of development. Mortgage approvals rose faster than expected in January indicating a stable consumer confidence and willingness for long-term purchases while manufacturing PMI and Net Credit on Dwellings lagged behind projections. Yields on the UK Gilts with maturity from 2 to 40 years indicate a shrinking risk appetite and slowing inflationary expectations. The Pound lost its main catalyst for growth – economic data and now the plunge back to 1.20 in the run-up to the official Brexit launch becomes quite realistic.

The European currency is supported with consistently positive economic updates, suggesting that the economy of the bloc is back on a recovery track and inflation is picking up. German CPI rose 2.2% in January versus the expected 2.1%, while Eurozone CPI came in line with forecasts at 2.0%.  On the flip side, investors are feeling unsure if the Eurozone has got rid of the political shakiness while increasing the race gap between Le Pen and Macrone, who possibly could smooth the risks. Yellen speech on Friday and the Dollars response afterwards will possibly suggest if the time is ready to buy the Euro at the stiff-necked and uncompromising support near 1.05 levels for a relatively long time.


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