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EUR/USD – Euro Gains Ground Despite Weak German Confidence Report

EUR/USD is slightly higher in the Tuesday session, erasing the losses seen on Monday. Currently, the pair is trading at 1.1396, up 0.36% on the day. On the release front, both German and Eurozone ZEW Economic Sentiment both improved in December, but still posted sharp declines. In the U.S, the markets are braced for a sharp drop from PPI and Core PPI, with estimates for 0.0% and 0.1%, respectively. On Tuesday, the eurozone releases industrial production and the U.S. publishes CPI reports.

Financial experts remained very concerned over the economic prospects in Germany and the eurozone. The German ZEW Economic Sentiment survey improved to -17.5, beating the estimate of -25.0 points. However, the indicator has been mired in negative territory for a 9th consecutive month. The eurozone reading of -23.2 was also dismal, although it was slightly above the forecast of 21.0 points. The ZEW was bleak in its assessment of the December readings: The assessment of the economic situation has worsened dramatically for both Germany and the Eurozone. This is indicative of relatively weak economic growth in the fourth quarter. If upcoming Q4 data misses expectations, the euro will be under heavy pressure.

The ECB holds a policy meeting on Thursday, and policymakers are expected to finally wind up the bank’s bond purchase program. The scheme commenced in March 2015 and has grown to some EUR 2.5 trillion in assets. The program was implemented in order to kick-start the economy and raise ultra-low inflation levels. Inflation has moved closer to the ECB target of around 2 percent, and the eurozone economy performed well earlier in the year. This prompted the ECB to announce that it would wind up the program in December. However, economic conditions have deteriorated in recent months, as the nagging U.S.-China trade war has weighed on the global economy and hurt the export and manufacturing sectors in Germany and the eurozone. ECB policymakers are not expected to change course, but any hints of re-introducing stimulus in 2019 would likely send the euro sharply lower.

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