- Benjamin Schroeder, an interest-rates strategist at Commerzbank
There is always a clam before the storm. The most traded currency couple was unshakable on Tuesday, trading in a very narrow range for the second straight session. The pair was kept quiet on Tuesday by a light agenda, however, as it was already mentioned, the pair will be highly volatile in the second half of the week, as markets are waiting for inflation figures from Europe and the second-quarter GDP from the United States.
The stimulus package announced in June by the ECB has already pushed the average yield on bonds from Europe's most-indebted countries to a record low, while service and manufacturing production was boosted in a vote of confidence. However, stimulus has yet to provide a boost to growth, prices and lending, with geopolitical issues threatening to undermine sluggish recovery. Inflation and unemployment data will be preceded by the region's business confidence, which is likely to be undermined by tensions in Ukraine and Israel. Currently, the central bank predicts a 1% expansion for this year, 1.7% and 1.8% for 2015 and 2016, respectively. At the same time, inflation is projected to rise gradually over the next two years to 1.4% in 2016, still far away from the official target. The central bank is running out of tools, and in case any of indicators fails to deliver, then Mario Draghi will have a real dilemma.
© Dukascopy Bank SA