EUR/USD remains trapped between 1.12 and 1.15 and as much as the ECB has tried to confirm they are looking to raise rates this year, the market is not agreeing. ECB’s Hansson noted that the ECB still will keep rates at present levels through the summer, implying we could see a hike as early as September is still possible. Money markets are still pricing the first ECB hike closer to the middle of 2020.
Hansson’s overall comments regarding the economy suggests they will remain data dependent and that can’t bold well for rate hike expectations in September.
Overnight, Industrial production disappointed for Germany in the month of November, pointing to a potentially lower GDP reading for the fourth quarter. The broad-based slowdown was led by consumer goods and energy. Both the monthly and annual readings came in worse than expected and the prior months were revised lower. The German economy remains vulnerable to both the ongoing trade talks with the US, which have been going on since the end of summer and the uncertainty of Brexit. If Germany gets their second negative GDP reading, they will fall into a technical recession, which means it will be nearly impossible for the ECB to raise rates in 2019.
Price action on the EURUSD daily chart highlights that tight range that has been in place since mid-October is attempting to breakout higher. If we see price close above both the 100-day SMA and the 1.15 level, we could see bullish momentum target the 1.1635 level. If the recent holds, price could consolidate back towards the 1.1350.