EUR/USD: Expected Rise in Industrial Output to Lift the Euro

European Central Bank President Mario Draghi’s remarks in the Spanish parliament yesterday are believed to lift the Euro opposite the US dollar today. Draghi expressed confidence that Spain is on the right track and said politicians should refrain from calling for intervention on the Euro’s value. Likewise, an expected rebound in industrial output across the region in December is also deemed to improve market sentiment.

At a testimony to the Spanish Parliament yesterday, ECB President Mario Draghi delivered an upbeat assessment of Spain, saying the country has succeeded in stabilizing an ailing banking system and is in shape for better economic times going forward. Draghi later on told reporters that Spain is “on the right track.”Spain has had to undertake a host of painful austerity measures and ask for a bailout package for its banks funded by the Euro Zone. In exchange for the funds, the country has been strengthening its banking sector and requiring banks to hold large capital buffers. “Today, Spanish banks are properly capitalized by and large, so in a position to give credit,” Draghi said. Likewise, with the bloc experiencing a slow and modest economic recovery, he expects credit flows to pick up as well.

Meanwhile, on the hot topic of the strength of the Euro, Draghi said that politicians’ calls for the central bank to influence the exchange rate are inappropriate and fruitless. He added that talks of a currency war were exaggerated, saying the term currency wars is overdone. He continued by saying the ECB does not target any particular exchange rate. Last week he said the ECB is monitoring the stronger Euro’s effects on inflation and the economy, remarks that investors interpreted as a warning the ECB could intervene should the Euro climbs too rapidly. Nevertheless, his comments yesterday likely suggest that such action, if any, is still not warranted.

On the economic front, a report today is foreseen to highlight that the Euro Zone factory sector is improving. Eurostat is believed to reveal that industrial output in the region inclined by 0.3 percent in December, potentially offsetting the 0.3 percent decline in the previous month. Activity gauges released earlier this month indicated that although manufacturing continued to shrink in January, the contraction was at its slowest pace in 11 months. On positive signs for the Euro economy, a long position favoring the single currency is advised today.

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