ECB President Mario Draghi responded to critics from German Finance Minister Wolfgang Schauble that negative interest rates hurt savers and weighing on the banking sector. Draghi said that low interest rates are not harmless but they are only the symptom, not the cause of an underlying problem, adding that there was no alternative for now. Meanwhile, the Euro zone's manufacturing sector expanded in April, recording a marginal improvement from the March reading. The manufacturing PMI in the Euro bloc ticked up to 51.7 points in the reported month, up from 51.6 points and compared with the preliminary reading of 51.5, according to Markit. Factory activity in the Euro area's powerhouse, Germany, revealed a fresh upside trend in April. Germany's final manufacturing PMI increased to 51.8 points during April, advancing from the previous final March reading of 50.7. Last week's GDP data showed 0.6% growth of the Euro zone's economy in the first quarter of 2016, compared with last quarter's 0.3%. On an annual basis the economy expanded 1.6%, in line with the previous number and beating the 1.4% estimate. Despite positive GDP numbers, Euro zone policy makers should be alert, as the CPI estimates showed the single currency area sliding further into deflation territory, as the estimated CPI dropped from -0.1% to -0.2% on an annual basis.
The Reserve Bank of Australia surprised economists by slashing interest rates to a new historic low in a bid to reignite inflationary pressures. The central bank cut the official cash rate by 25 basis points to 1.75%, after keeping rates on hold for a year. The decision came after the Australian Bureau of Statistics released quarterly CPI data, showing headline inflation plunged from 1.7% in the final quarter of 2015 to 1.3% last quarter. Worrisome though, was that all three gauges of underlying inflation came in below the RBA's 2-3% target range in the reported period, with two of the three core measures hitting their record low. RBA Governor Glenn Stevens also added that softening conditions in what was an overheated housing market allowed the central bank to cut without fear of fuelling unsustainable price growth. While Australia's inflation outlook appears to be darkening, the country's broader economic health has been steadily improving for some time. The economy is continuing to rebalance following the mining investment boom, according to the RBA's cash rate statement. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Yet, Stevens reiterated the Australian Dollar's strength "could complicate" the necessary adjustment in the economy. The Aussie has gained around 12% against the US Dollar since mid-January, further dampening the inflation outlook and hurting exporters.
Upcoming fundamentals: Fed's Mester and Lockhart to speak Tuesday
EUR/USD surges past 1.15, stopped by W/M R1
Weakness of the Dollar transferred to the new working week, as another piece of soft North American data pushed EUR/USD beyond 1.15. By violating multi-month resistances, including the October 2015 high, the pair was only capped by the weekly and monthly R1s placed around 1.1538. This is the initial supply for Tuesday, but the rally until the second bunch of resistances (weekly/monthly R2) at 1.1619/26 is not off the table. Now the cross is trading at its peak levels since August of the last year and weekly technical indicators suggest the uptrend is ready to continue.SWFX sentiment most bearish in 3 months
Spreads (avg,pip) / Trading volume / Volatility
Average forecast says EUR/USD will trade at 1.12 by August
Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between April 3 and May 3 expect, on average, to see the currency pair around 1.12 by the end of August. Though 55% (+1%) of participants believe the exchange rate will be generally below this level in ninety days, with 43% alone seeing it below 1.08. Alongside, 25% (+1%) of those surveyed reckon the price will trade in the range between 1.12 and 1.18 on August 31.