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Euro to be stripped of safe haven status?

Euro to be stripped of safe haven status?

Last week ended with most of the price action revolving around the Dollar as market participants concentrated on the Retail Sales report. The consumer report was in focus because the Fed made it clear in their recent commentary that they are monitoring the consumer market as they believe that it will be one of the key drivers of the US domestic economy. Consequently, when both core and headline retail sales data for January printed above expectations the Dollar was able to muster a small rally following a week under pressure.

Today is Presidents’ Day in the US meaning there are no data releases. This suggests that volatility is likely to be at a minimum as there are no real drivers to spark price movement. Focus will return to the Dollar later in the week when the Fed release their minutes on Wednesday.

Eurozone real GDP growth fell in line with expectations on Friday, growing at a modest 0.3% in the fourth quarter, bringing the YoY growth to 1.5% which is slightly down from 1.6% for the previous period. EURUSD returned from 1.1370 highs and declined following the positive US retail sales figures. This decline seems to be gaining some momentum as EURUSD has broken into 1.11 territory this morning. It will be interesting to see if investors will shift their safe haven flows from the Euro back to the Dollar. Soft growth figures from the single currency bloc and minimal inflationary pressures may influence the European Central Bank (ECB) to ease policy further at the next meeting. Mario Draghi is due to speak at 2pm today so the market will be waiting to see what he has to say before making any meaningful moves to either the upside or down.

The Bank Of England (BoE) highlighted last week that inflation is likely to be lower than first thought due to the continued decline in oil prices and a GDP forecast that shows slower than expected growth in Q4 2015 and Q1 2016. The BoE also noted that Brexit concerns continued to weigh on the Pound. Inflation, earnings and retail sales releases this week will all be key, although data would need to be exceptionally strong to reverse the BoE’s current dovish expectations.

Data to watch: 10am Eurozone Trade Balance. 2pm ECB President Draghi Speech.

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