Outlook for the European Data Ahead of US Tariffs Announcement

Today, traders will focus on key
economic data from the European Union. This data will be very important because
it will present a picture about the health of the European economy.

In the morning, Germany will
release the second reading of the fourth quarter GDP number. In the quarter,
investors expect the economy to have grown by 0.9%. On a MoM basis, the economy
is expected to have remained unchanged. A worse data than this could mean that
the country entered a technical recession in the quarter.

Two hours later, ifo, the German
thinktank will release a number of survey data. The business climate index is
expected to be at 99. This will be slightly lower than the previously released
data of 99.1. This data measures the expectations of business leaders on the
economy for the next 6 months. The German current assessment number is expected
to decline to 103.9 from the previous 104. The business expectations is
expected to remain unchanged at 94.2.

A hour later, Eurostat will
release the inflation numbers. The headline CPI number is expected to remain
unchanged at 1.4% while the core CPI too is expected to remain unchanged at
1.1%. The core CPI removes the volatile food and energy products. On a MoM
basis, the headline CPI is expected to decline by -1.1% while the core CPI is
expected to decline by -1.1%.

These numbers come at an
important period for the European Union. Already, Italy is in a technical
recession while the political situation in Spain is becoming volatile. In France,
Emmanuel Macron continues to face huge pressure from the opposition. The region
is still expected to face an uncertain period as it relates with Brexit. The UK
is expected to leave the EU in a month’s time.

The problems keep on adding up.
This month, Donald Trump received a report from the commerce department on EU
imports. The goal of the assessment was to examine whether EU vehicle imports
presented a risk to the United States. If the report recommends this, Donald
Trump could put tariffs on the European imports such as vehicles. EU,
especially Germany is one of the largest vehicle exporters to the United
States. These tariffs would be worth more than $10 billion a year. Of course,
the EU could retaliate but the numbers will be small because the US exports to
the EU are slightly lower. The EU could retaliate in the services industry
where the US has a larger surplus. The chart below shows the average tariffs
between the US and EU.

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In the past few days, the EUR/USD
pair has remained relatively unmoved. The pair has been consolidated as
investors weigh the dovish Fed and the deteriorating European economy. This
consolidation means that the pair could have a major movement in either
direction.

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