Yesterday's headlines were dominated by the US inflation report, triggering fluctuations across financial markets. This led to the EUR/USD pair retracing towards $1.07, unable to surpass its 100-day moving average just below $1.08. Meanwhile, the German ZEW index, somewhat overlooked, extended its growth streak for the seventh consecutive month.
The ZEW index gauges financial analysts' evaluations and expectations regarding economic and financial developments. Although the current assessment component declined to -81.7, the lowest since June 2020, the outlook for Germany showed improvement, suggesting that Europe's largest economy might have already weathered its lowest point. However, the recovery path faces significant challenges, likely curbing the euro's rebound, especially against stronger currencies like the pound and US dollar.
A notable portion of ZEW respondents anticipates interest rate cuts by the European Central Bank (ECB) in the next six months due to declining inflation rates. Despite recent adjustments in expectations for early ECB cuts, the cumulative easing expected for 2024 is projected to surpass that of the Federal Reserve or the Bank of England, putting downward pressure on the euro.
Looking ahead, the spotlight shifts to today's release of the second estimate of fourth-quarter Eurozone GDP and industrial production. These indicators could influence euro volatility, setting the stage for tomorrow's eagerly awaited US retail sales and industrial production data.
