The US Dollar and Euro will be watching the release of German ZEW Survey data that is hovering around levels not reached since the Eurozone debt crisis and before that the 2008 financial collapse. This comes as the European economy continues to show weakness and pressure the local currency as 5Y5Y Euro inflation forward swaps hovers at record lows. This indicator is typically used as a tool for future inflation expectations.
Last week, the ECB cut rates deeper into negative territory and reintroduced QE. However, this was not sufficiently dovish enough for markets participants who were hoping for more easing. After the rate decision, the Euro – rather counterintuitively – closed higher for the day. This suggests that the ECB had failed to meet the market’s lofty expectations for ultra-dovish policy measures and showed desperation for liquidity.
Up next, ECB Chief Economist Philip Lane and Executive Board Member Benoît Cœuré will both be speaking in Luxembourg. Though their commentary may not stoke notable volatility, the nuance of their comments could provide greater insight into policymakers’ views.
In the US, traders will be eyeing local industrial production data, though volatility from these events may be curbed due to the upcoming FOMC decision this week. Rate cut bets have already been priced in, so at most what they could do is either amplify or slightly temper future rate cut bets at upcoming meetings. However, this by no means suggests the upcoming data is irrelevant, especially in light of a slowing global economy.