EUR/USD is rangebound on Wednesday, as the pair trades in the mid-1.36 level in the European session. Eurozone Industrial Production looked weak, posting its third decline in four months. Later in the day, ECB head Mario Draghi will address a banking conference in Brussels and the markets will be listening closely. In the US, it’s a quiet day, with only three releases on the schedule. On Tuesday, Fed chair Janet Yellen testified before Congress and reiterated that the Fed plans to continue tapering QE. JOLT Job Openings, a key event, showed little change in January and fell short of the estimate.
Eurozone manufacturing releases have not impressed in January. Eurozone Industrial Production slid 0.7%, short of the estimate of a decline of 0.2%. The French release posted a decline of 0.3%, shy of the estimate of -0.1%. For both indicators, this was the third decline in four tries. Italian Industrial Production headed south after three straight gains, with a decline of 0.9%. The markets had expected a reading of 0.0%. These low figures point to weakness in the Eurozone manufacturing sector.
New Fed chair Janet Yellen didn’t generate much excitement in her appearance before Congress on Tuesday. She said that the Fed plans to continue trimming QE, provided that the employment picture continues to improve and inflation rises. She acknowledged that event though the unemployment rate has improved steadily, the recovery in the labor market is far from complete. Meanwhile, JOLTS Job Openings, a key event, showed little change in January, with a reading of 3.99 million. This was short of the estimate of 4.04 million.
With the Eurozone affected by very weak inflation, the ECB’s options are limited. With the benchmark interest rate at a record low level of 0.25%, the ECB opted not to lower rates last week. There was talk that the ECB might reduce deposit rates below zero, but such a move would likely hurt the euro due to investors dumping their euros in favor of other currencies. When the ECB stood pat, the euro jumped, gaining about a cent after Draghi’s press conference. Draghi then reiterated what we’ve heard many times over, that for the foreseeable future interest rates will stay at their current levels or could dip even lower. What action, if any, the ECB takes when it sets rates in March will be heavily influenced by the inflation situation in the Eurozone. If inflation weakens further, the ECB will be under strong pressure to make a move.