The recent announcement from the US government to apply fiscal stimulus and invest over a 10-year period a $1.5 trillion in an infrastructure plan, sending a request to Congress for $200 billion to support this very large infrastructure plan, is a key driver for the expansion of the US economy, which is performing well. The infrastructure plan has the potential to boost the economic growth, lower the unemployment rate but at the same time increase the inflationary pressures in the economy, leading to a tighter monetary policy and more interest rate increases in the future by the Fed.
This may be supportive for the US Dollar, but there are also raising concerns about the large deficits in the US economy, a fundamental factor which is worrying about the state of the US economy. The Fed has to strike the balance between the economic growth and the target rate of inflation, while avoiding any possible overheating worries of the economy, and this is not an easy task. Today there are very important economic events related to the economies of the Germany, Italy, Eurozone and the US.
The focus will be early in the morning on the German GDP growth rate and on the GDP growth rate in the Eurozone, while later the anticipated inflation rate in the US. High volatility is expected for the EUR/USD currency pair as the forex market will evaluate which fundamental factor has the more weight to focus on, GDP growth rate or inflation rate, possibly to set a new trend.
These are the main economic events for today in the forex market to focus on:
European Session
- Germany Inflation Rate Final and GDP Growth Rate, Sweden Riksbank Rate Decision, Italy GDP Growth Rate
Time: 07:00 GMT, 08:30 GMT, 09:00 GMT
A lot of fundamental events today with the potential to move significantly the Euro. Higher than expected or rising figures for the inflation rate and the GDP growth rate in Germany and in Italy will be supportive and positive for the Euro, indicating that two of the largest economies in the Eurozone are expanding. Also the inflation rate in Germany has a large weight on the inflation rate in the Eurozone, so any inflationary pressures in Germany will influence also significantly the inflation rate in the Eurozone.
However, the ECB has stated that there should be not any interest rate increases in 2018, depending on the current economic conditions. The forecasts are for an unchanged interest rate by the Riksbank in Sweden, which should have a neutral effect on the Swedish Krona, a decrease for the inflation rate in Germany on a yearly basis with a figure of 1.6%, lower than the previous figure of 1.7%, an increase for the German GDP growth rate on a yearly basis with a figure of 3.0%, higher than the previous figure of 2.8% and a marginal decrease of the GDP growth rate in Italy with a figure of 1.6%, lower than the previous figure of 1.7%.
- Eurozone GDP Growth Rate and Industrial Production
Time: 10:00 GMT
Shortly after the economic data in Germany and in Italy the economic data for the Eurozone can move the Euro significantly, especially if there are any large positive or negative economic surprises. Higher than expected or rising figures for the GDP growth rate and the industrial production in the Eurozone, will be positive for the Euro reflecting a robust economy and a strong industrial sector.
The forecasts are for a marginal decrease for the GDP growth rate in the Eurozone on a yearly basis with a reading of 2.7%, lower than the previous reading of 2.8%, but a significant increase is expected for the industrial production on ay early basis with a reading of 4.2%, higher than the previous reading of 3.2%. As seen from the graph the GDP growth rate in the Eurozone is expected to decline in the near future and be close to the 2% level. From 2017 until 2022 the real GDP growth rate which takes into consideration the level of inflation is expected to be in a downtrend. This forecast makes harder for the ECB to justify and alter its monetary policy soon to fight the inflationary pressures, as for the moment the inflation rate for January 2018 is at 1.3%, at relative low levels.
American Session
- US Inflation Rate and Core Inflation Rate, Retail Sales
Time: 13:30 GMT
The US Dollar is searching for a fundamental catalyst to establish a new trend and this could be the inflation rate report, with rising figures being supportive and positive increasing the probabilities of future interest rate increases by the Fed. The forecast is for a reading on a yearly basis of 2.0%, marginal lower than the previous reading of 2.1%, an unchanged core inflation rate of 1.8%, and a small decline for the retail sales on a monthly basis with a reading of 0.3%, lower than the previous reading of 0.4%.
As seen from the chart the inflation rate on a 1-year basis has fallen from the peak of 2.7% in February 2017 has declined at the current level of 2.1%. And seems to have been stabilized in the range of 1.9%-2.2% for the past five months. Nevertheless the recent announcement of fiscal stimulus by the US government may prove to be effective in the future adding real inflationary pressures in the economy, which should prove in economic theory supportive for the US Dollar making the interest rate path based on gradual rate increases more probable.
- US Crude Oil Inventories
Time: 15:30 GMT
In general if the increase in crude inventories is more than expected, it implies a weaker than expected demand and is considered negative for crude oil prices.
Large surprises can move significantly the oil prices and the USD/CAD currency pair.
