EUR/USD: German Data, ECB Outlook Set to Support the Euro

The Euro is deemed to resume its advance opposite the US dollar today as analysts predict that the European Central Bank will keep interest rates unchanged tomorrow in their first policy meeting of 2013. Meanwhile, despite grim figures yesterday which showed unemployment in the region climbing to a new high, manufacturing data from Germany is seen to improve the economic outlook for the Euro Zone.

To continue piling pressure on governments to sustain their resolve to combat the debt crisis, analysts believe that the ECB will usher in 2013 by keeping interest rates on hold for a sixth consecutive month tomorrow. With borrowing costs already at a record low of 0.75 percent and its latest anti-crisis weapon ready for action, ECB President Mario Draghi is expected to insist once again that only governments can solve the crisis. In its meeting last month, Draghi revealed that the bank held a wide discussion of a rate cut before opting to keep them on hold. Since then however, officials have tried to dampen rate cut speculations while recent vital sentiment indicators have improved. Last Friday, the Purchasing Managers Index for the entire Euro area hit a nine-month high, offering hope that the Euro Zone could be moving out of its double-dip recession. Hence, although Draghi is widely expected to signal his readiness to act further, economists see little urgency to act this month.

On economic news, the Euro Zone unemployment rate rose to a fresh high in November as a net 113,000 individuals lost their jobs, leaving record numbers without work. The jobless rate edged up to 11.8 percent in November, with 18.82 Million people unemployed. The Euro Zone economy contracted in the second and third quarters of 2012, and the rise in unemployment corroborates that it shrank again in Q4. Nonetheless, offering some ray of hope, retail sales rose in November for the first time since July while consumer confidence picked up slightly in December. Today, Destatis is awaited to report that industrial production in Germany grew for the first time in four months in November, suggesting the resilience of the region’s largest economy. Output is estimated to have increased by 1.1 percent, recovering from the 2.6 percent drop registered in the previous month. On additional signs that the economy has bottomed out, a long position is recommended for the EUR/USD trades today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.