Euro Faces Big Event Risks with French Elections and ECB Meeting

The Euro has finally seen an end to its four day losing streak. Although European data also fell short of expectations, the disappointment in the US data was even more significant.

Service sector PMI dropped from 57.4 to 57.0, due to slower growth in France and Italy. Both the manufacturing and service PMI numbers have been declining and we are certain that this is related to the strength of the Euro, but at the same time, both readings are still deep in expansionary territory. None of these numbers are concerning enough for the European Central bank to shift their plans to raise interest rates. Despite the drop in German retail sales earlier this week, the increase in Eurozone retail sales reported this morning will pacify any major concerns about consumer spending. The number one focus next week will be on interest rates. Even though the ECB is not expected to lift rates on Thursday, the market will be keeping a close eye on Trichet?s post meeting press conference. No one is anticipating changes to Trichet?s degree of hawkishness, but should there be any hint of concern about economic growth, inflation, or the value of the Euro, expect a reversal of any Euro strength that was built up going into the meeting. Meanwhile the second round of the French election is this weekend on May 6. Sarkozy is leading Royal and predicted to be the winner. For more on what this means see our report, French Election Moves to Round Two, What could it mean for the Euro?