The economic calendar looks fairly uneventful in European hours, with most of the outcomes of most releases reflecting themes that have already been priced into exchange rates. On the inflation front, Germany’s Wholesale Price Index is set to shrink -9.0% in the year to May, the largest decline on record; meanwhile, France’s Consumer Price Index is set to dip into negative territory with a print at -0.2% for the annualized metric. German and Italian consumer inflation also turned weaker, with the former coming to a standstill and the latter dropping to a record-low 0.8% in the year to May. Such outcomes hammer home the fact that the Euro Zone now faces a credible deflationary threat, arguing for a far more forceful monetary response than anything that has been introduced by the European Central Bank thus far. Overnight index swaps suggest that traders are pricing in virtually no chance that the ECB will lower rates at the next policy meeting and quantitative easing will be difficult to expand beyond the modest measures announced earlier this month given the internal conflict about such policies within the central bank. On balance, the currency bloc is looking increasingly vulnerable to slipping into prolonged stagnation as entrenched expectations of lower prices see consumers and businesses hold off on spending and investment as they perpetually wait for the best possible bargain.

Separately, Euro Zone Industrial Production is set to contract for the eighth consecutive month in April, shedding -0.4%. Although the decline is markedly smaller than anything seen in recent months, some moderation is to be expected as companies restock depleted inventories. Global demand remains extremely fragile and output is likely to remain at subdued levels in the months ahead.

This entry was posted on Friday, June 12th, 2009 at 1:44 am and is filed under Currency Trading, Economic Indicators, Economy, Euro. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.