Positive economic data continues to fuel gains in the Euro. Italian retail sales doubled expectations by rising 0.5 percent in March, bringing the annualized pace of growth up from 0.4 percent to 2.6 percent.
The strength of the Italian consumer is reflective of the broadness of the European recovery especially as Eurozone industrial orders came close to tripling expectations with a monthly growth rate of 2.7 percent. Yet even though European data has been consistently surprising to the upside, the Euro has struggled to rally. Why? Because a lot of the good news has already been priced into the market and traders fully expect a 25bp rate hike to 4.00 percent next month and what they are now looking for are clues on policy actions beyond June. Unfortunately, the two latest pieces of data are for the month of March, which is too backward looking to give any clear indication of whether interest rates will hit 4.25 percent this year. Tomorrow?s German IFO survey is different as it is forward looking rather than backward looking and unlike the German ZEW survey of analyst sentiment, the IFO survey has been a far better indicator of how the economy is faring. Therefore, the data release tomorrow will be much more market moving for the Euro than the releases that we have seen thus far. Meanwhile the only carry trade currency pair to not rally was EUR/CHF. Continual complaints from the Swiss National bank suggest that they may be getting serious about preventing any further weakness in the currency.