Germany Continues to Rise Above

With an eventful week nearing its end, traders might be perched towards the edge of their seats as Italian elections during the weekend remain a key event to watch out for. Data out earlier today showed that sentiment among German business houses improved for February, in line with recent forward looking indicators. For the day ahead, the EU is scheduled to release its economic forecast for the region’s economies. Apart from projections for peripheral economies the forecast for France will be closely watched, given the weakness seen recently. With a subdued session in store for Sterling today, next week’s GDP and manufacturing data will hold significance for determining the near term trend.

Pound Sterling – UK Markets

Sterling managed to recoup some of its recent losses against the single currency in yesterday’s trading session, as a dismal set of PMI releases across Europe dented market sentiment. Moreover, upbeat public finances data and CBI trends survey also supported the Pound. However, with today’s German Ifo sentiment indices surprising on the upside, Sterling looks a little vulnerable once more against the Euro. Public finances data showed that Britain recorded its highest surplus in five years for January, thereby marginally lowering prospects of the UK losing its coveted “AAA” credit rating. Additionally, manufacturing activity showed signs of recovery, as the CBI trend survey showed an improvement in UK industrial orders for February. Manufacturing PMI due next week will offer more cues on this front. Meanwhile, in the midst of a slowdown in the UK economy the BoE policymaker, David Miles, continued to reiterate his call for further monetary easing. With a light economic calendar today, developments from the Eurozone are likely to hold significance for the currency in the near term.

US Dollar – US Markets

The US Dollar garnered traction against the single currency yesterday, as weaker than expected PMI releases across Europe kept investors on the edge. Additionally, differing views by Fed policymakers over the future course of action that the central back should likely adopt continued to confound traders. Meanwhile, a modest fall in consumer price inflation and a rise in the number of people claiming jobless benefits have given adequate reason to the Fed to continue with its current bond buying program. Additionally, manufacturing activity in the Philadelphia region unexpectedly contracted for February. However, housing data has continued to surprise market participants, as data released yesterday indicated that existing home sales rose for January. Going forward, manufacturing releases from the other regions due next week will be closely watched for further insights into US economic recovery. Additionally, revised fourth quarter GDP data will be keenly eyed.

Euro – European Markets

With the manufacturing engine showing no signs of acceleration in the zone, the Euro moved lower against the majors in yesterday’s trading session. Against this backdrop, the EU Commission’s economic forecast due later today is not expected to provide any positive surprises. However, Germany has continued to weather the storm well compared to its other European counterparts, as data released today showed that Ifo sentiment indices continue to point towards an improvement in the Eurozone’s largest economy. This has provided some support to the Euro in today’s trading session. Despite political uncertainty looming in Spain, the nation witnessed a higher than target sale of bonds in its auctions held yesterday. In this context, the EU Commission‘s assessment on Spain’s deficit and growth forecasts due later today should be closely watched. Markets also await the ECB’s announcement of the repayment details of the second LTRO. Going forward, traders are expected to keep a tab on the Italian Parliamentary elections due this weekend. The centre-left government is likely to win and continue with the reforms agenda to set the house in order, while the former Prime Minister, Silvio Berlusconi, remains a dark horse in the election.

Other Currencies – Highlights

The Japanese Yen has declined against its peers in today’s trading session after the IMF indicated that concerns surrounding the recent depreciation in the Yen are overstated and that the BoJ should continue with its resolve to escape the deflationary situation. Meanwhile, with traders staying watchful over the leadership transition at the BoJ, the Japanese Finance Minister, Taro Aso, indicated that the next Governor may not necessarily have to come from the finance ministry. With no major domestic releases scheduled for today, the meeting between the Japanese Prime Minister, Shinzo Abe and the US President, Barack Obama to discuss bilateral cooperation gains prominence. Traders are likely to position themselves for a flurry of economic releases scheduled for release next week. Although retail sales and manufacturing figures are likely to garner some interest, the all important consumer inflation figures will hold major significance, given its impact on the BoJ’s future stance.