Euro: Stronger Data Fails to Clear the Air on where Rates are headed Beyond June

The European economy has been exceptionally resilient to the strength of the Euro and the Value Added tax increase. Today, we saw German investor confidence hit an 11 month high and the Eurozone trade surplus hit a 2 year high.

After remaining relatively pessimistic for close to a year, analysts are finally acknowledging that the European economy is recovering by raising their degree optimism - but are they too late? Increased hedging by large European corporations has helped the earnings of companies like Siemens and DaimlerChrysler beat expectations while stronger growth and falling unemployment continues to pave the way for an interest rate hike by the European Central bank next month. However despite these bullish reports, the Euro weakened instead of strengthening after the data release as the market realized that the numbers do little to clear the air on what the ECB will do with interest rates after June. The trade data was for the month of March which is backward looking while analyst sentiment has recently been a poor leading indicator for how the economy is doing. Instead, the better indicator has been the IFO survey of business sentiment due out Thursday. Should business sentiment also increase, then we could actually see a reaction in the Euro. Meanwhile Swiss National Bank President Roth continues to criticize the weakness of the Swiss Franc. He indicated that the central bank was “particularly vigilant” against inflationary pressures and even though intervention in the currency is not needed at the moment, they have never excluded it as an option. We are finally seeing some reaction in the value of the Franc against the Euro, but the battle between the demand for carry and the desires of the central bank has made it difficult for the CHF to see any major movements. In the meantime, there are still a number of Swiss releases scheduled for release this week.