06:00 EST (12:00 CET) looks to be rather busy for the EURUSD with two important bits of data being released at the same time: November EZ consumer price index and October final unemployment rate. Each on their own could move the market, so let’s have a look at what could happen.
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Eurozone November CPI
The focus is going to be on the Consumer Price Index figure since that is fresh data for the current month and is directly tied to the ECB’s mandate.
Typically, however, the focus is on the core index, which excludes food, alcohol, tobacco, and energy (the latter being of importance considering the recent drop in crude prices).
Last month’s continued to perform in line with the ECB’s target of around 2.0%, which it has been doing since May of this year. Consensus expectations are for the index to come in the same as last month at 2.2%. The data shouldn’t take the market by too much of a surprise as we get the data from the constituent countries ahead of the consolidated release. However, it is important for overall outlook and pricing in expectations.
Of note, the ECB’s bond-buying program is expected to come to an end in December, and that opens the question as to when it is going to start reducing their balance sheet. Additionally, the financial press is reporting that the governing council is planning a bond reinvestment strategy to start at the conclusion of the buying program.
While inflation has been up, the economy hasn’t been keeping up, and that has been acknowledged by ECB’s Draghi as recently as November 26th in a speech before Parliament.
GDP growth peaked at 2.8% in Q3 of 2017 and since has been slipping to just 1.7% in the latest report of Q3 this year. This could be leading the Eurozone into an awkward position for policymakers: stagflation. Further evidence of that comes from the following.
Unemployment rate (final)
At the same time, we get the release of the unemployment rate for the Eurozone from the month of October. This is a consolidation of the figures we saw the day before, and so it’s not too much of a surprise, but it’s also not all that positive.
The unemployment rate for the entire Eurozone has slowly come down to 8.1% by July of this year and has stubbornly stuck there ever since, with the forecast for the figure to be announced again at 8.1%.
Although it might be expected for employment to get a bit of a boost going into the holiday season (and that’s what happened last year, with the rate dropping from 8.8% in October to 8.6% in January), the effect has been muted. A rate around 8.0% is still way above structural level, and if the rate were to climb in October, it would sit quite uncomfortably with policymakers.
Could that prompt an extension of the bond-buying program? Officials have been quite adamant that it would not; even the ECB’s Vice-President de Guindos insists that the region continues to grow.
Well, yes; but, Business Confidence and consolidated PMI have also been tracking lower since May of this year. Maybe this is why the idea of bond reinvestment is going around, though still not confirmed by anyone officially.
Around the same time, we have ECB’s Mersch giving a speech, largely expected to keep the ECB line. Previously he insisted that that ECB bond-buying must remain market neutral. What that means in a context of increasing inflation and slowing growth is an open question.
Last month’s unemployment and CPI released came ahead of around a thirty pip move in the EURUSD and a 50 pip move in the EURGBP.