TALKING POINTS – EURO, GERMAN FACTORY ORDERS, ECB MINUTES
- Euro drops as German factory orders post largest drop over 2 years
- Defensive tone in ECB meeting minutes may add to selling pressure
- Fresh global slowdown fears might sour market-wide risk appetite
The Euro dropped as February’s German factory orders data printed dramatically below median forecasts (as expected), showing a drop of 4.2 percent from the prior month. That marks the largest decline since January 2017. Analysts were expecting to see an increase of 0.3 percent.
The single currency fell alongside bond yields and S&P 500 futures. That hints the data may have stoked broader global slowdown fears, coming as it did from the world’s third-largest exporter. Looking ahead, minutes from last month’s ECB policy meeting may compound pressure on EUR and broader sentiment.
After that sit-down, central bank officials signaled that a rate hike is off the table for 2019 and announced a new round of TLTRO bank liquidity injections. Forecasts for growth and inflation were dutifully grim. With that in mind, a dovish tilt in the Minutes document seems likely.
Investors were not prepared for the Governing Council to do quite so much at once ahead of the March announcement. All the policy changes on offer were broadly expected, but it was thought they would be unveiled incrementally over subsequent months. The Euro understandably withered.
Policymakers’ outsized sense of urgency hints that they may have spotted reasons to worry beyond those that the markets were accounting for. The Minutes text may well suggest what they are. That might spook traders and cool risk appetite, boosting the anti-risk US Dollar and Japanese Yen against most counterparts.
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CHART OF THE DAY – EURO FALLS WITH YIELDS, S&P 500 FUTURES ON GERMAN FACTORY DATA
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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