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Euro-Zone Investor Confidence Tops Expectations, All Eyes on ECB

Euro-Zone Investor Confidence Tops Expectations, All Eyes on ECB

2017-06-06 09:18:00
Martin Essex, MSTA, Analyst
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Talking Points

- The Sentix index of Euro-Zone investor confidence hit 28.4 in June, above both May’s 27.4 and the expected 27.4.

- Euro-Zone retail sales were in line with forecasts in April month/month but higher than predicted year/year.

- Traders in the Euro should now be on the lookout for any hints of monetary policy changes at Thursday’s news conference by ECB President Mario Draghi.

- Check out the DailyFX Economic Calendar and see what live coverage of key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

Investor confidence in the Euro-Zone was higher than expected in June, according to the latest Sentix index. It rose to 28.4 from 27.4 in May, beating expectations of an unchanged figure and adding to evidence that the Euro-Zone economy is currently growing healthily. The index is now at its highest for almost 10 years.

However, that is not expected to lead to tighter monetary policy in the Euro-Zone near-term as attention turns to Thursday’s news conference by European Central Bank President Mario Draghi, which will likely determine the near-term direction of the Euro.

No immediate policy changes are likely but the markets are expecting Draghi to be modestly hawkish due to the continuing buoyancy of the Euro-Zone economy, and particularly of Germany and France, its two largest members.

The composite purchasing managers’ index for the Euro-Zone economy in May matched April’s six-year high and its compiler, IHS Markit, said Monday that is consistent with economic growth of 0.7% in the second quarter of the year.

Despite this positive background, Draghi is expected to make only minor changes to his opening statement at Thursday’s press conference and is not expected to signal an early “tapering” of its asset-purchase program to keep monetary conditions loose.

However, investors should watch out for any changes in his opening statement about the balance of risks to the economy, and also to the ECB’s forward guidance. In particular, it could drop any reference to the potential for further cuts in the deposit rate.

This would be broadly positive for the Euro but the risk is that he will less hawkish than the markets currently expect, sending it lower. The key levels to watch out for in EUR/USD are resistance at the recent highs just under 1.13 to the upside and support at the recent lows just above 1.11 to the downside.

Chart: EUR/USD Daily Timeframe (2017 to Date)

Euro-Zone Investor Confidence Tops Expectations, All Eyes on ECB

Chart by IG

Meanwhile, Euro-Zone retail sales in April grew by 0.1% month/month, in line with forecasts but grew by a higher-than-expected 2.5% year/year. Analysts were expecting growth of 2.1%, down from an upwardly revised March figure of 2.5%. The monthly rise was the fourth in succession.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

If you’re looking for trading ideas, check out our Trading Guides; they’re free and updated for the second quarter of 2017

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