Euro Has A Second Chance At Event Risk With Inflation Expectations

With heavy-hitting economic data populating the European economic docket, event risk traders were ready to dive into the market Thursday. However, with the data coming in at opposite ends of the spectrum and a major US release breaking the fundamental flow, there would end up being no consistency to the euro’s price action Thursday. Looking at the data triggers from the docket this morning, we began with a bullish tone.

German unemployment dropped four times faster than economists had expected. The number of jobless tumbled by 40,000 to 3.2 million – notably shrinking the jobless rate to a 16-year low 7.6 percent. While this was clearly a strong report, market participants seemed less than impressed. As the 32nd monthly contraction in joblessness, improvements in this area of the economy seemed to be priced in for the foreseeable future. What’s more, with business confidence at a three-year low and the German economic contracting through the second quarter, it seems only a matter of time before labor trends follow suit. Consumer spending seems to have already succumbed to the economic malaise with the German retail PMI number slipping to an 8-month low just minutes later. Looking ahead to Friday, the euro may not go quietly into the weekend. After most of its major member economies have released their respective employment figures, Euro Zone officials plan on reporting labor health for the entire region. More interesting though is the EZ CPI estimate. With ECB members calling market speculation for a rate cut premature, traders will want to find some confirmation on the presence of inflation. And, even though consumers have a habit of over stating the outlook for their cost of living, the consensus is looking for the estimate to pull back from its more than 12 year high.