Forecast: ECB Made Things Difficult for Euro

The euro experienced tremendous weakness recently due to the negative surprise from the European Central Bank. Can the shared European currency overcome the bearish impact of the ECB announcement or it will continue to move lower?
The European Central Bank provided an unpleasant surprise for euro bulls in form of comments from President Mario Draghi. The central bank did not change its monetary policy, as was expected, but Draghi said that he is “comfortable” with taking action next month. The Forex market interpreted the words as a hint on monetary easing in June, sending the euro crashing down. It is very likely that the impact of the announcement will persist this week, at least at the beginning, making the currency extend its drop. It would be welcomed by European policy makers, who were voicing concerns about the exchange rate and desire for it to fall.
A bunch of rather important economic reports is scheduled for release this week. News from Germany is expected to be mostly bad with a drop of the economic sentiment from 43.2 in April to 41.3 in May (released on May 13), a fall of industrial production by 0.3 percent in March and a decline of the Consumer Prices Index by 0.2 percent last month (both released on May 14). Growth of the French CPI is expected to slow from 0.4 percent to 0.2 percent (also released on May 14), while eurozone inflation should remain steady at 0.7 percent (released on May 15). At the same time, data about gross domestic product, which will be released on May 15, should be positive as economic growth accelerated in Germany (0.7 percent), France (0.4 percent) and eurozone as a whole (0.4 percent) in the first quarter of this year according to analysts’ estimates. As another piece of negative data, economists estimate that French non-farm payrolls dropped last quarter (released on May 16). All in all, specialists consider the economic outlook to be negative despite expectations of faster growth.
Echoing the general pessimism about the euro among market participants, DailyFX and Forex Crunch are bearish on the currency.
It is worth to mention a possibility of a rally for EUR/JPY as the yen also remains a rather soft currency. Speaking the truth, the chances for such rally look rather slim as it is expected that Japan’s economy will show robust growth by 1.0 percent in this week’s report, released on May 15, but the euro may still gain on the Japanese currency in case the report shows a disappointing result.

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