Euro: Looking for Clues to What the ECB May do Beyond June

The Euro is slightly stronger today despite disappointing economic data. German producer prices increased by a meager 0.1 percent in the month of April compared to the market?s 0.4 percent forecast.

The softer inflation number is another piece of evidence that the weakness in the US dollar and the strength of the Euro could discourage the European Central Bank from lifting interest rates beyond June. The reaction in the Euro was relatively muted because the June rate hike has already been fully priced into the market while the PPI number does little to clarify whether the ECB will or will not move again after that. As Trichet indicated last month, they will decide what to do after June in June. Their decision is data dependent and there are a number of key European data that could help shed more light on the monetary policy outlook next week. We are expecting the release of the German ZEW survey, the trade balance, industrial orders and the IFO survey of business sentiment. The market is looking for these indexes to hold steady thanks to the strong growth. We remain skeptical as the strong Euro and prospect of a rate hike could at least make analysts more pessimistic. Meanwhile Switzerland also has a busy economic calendar next week that could lead to some interesting movements in the Swiss Franc. They will be releasing producer prices, employment, the trade balance and KoF leading indicators.