The EUR/USD pair is trading at $1.3808, down 0.2% as weaker-than-expected industrial production from Italy and a smaller-than-expected trade balance from Germany has dragged the euro towards the $1.38 mark. Yesterday, Mario Draghi of the European Central Bank hinted at the possibility of tackling the risk of deflation.
Inflation in the eurozone is well below the 2% target of the ECB, and Mr Draghi has come under fire for not intervening. However, even though he refrained from changing monetary policy yesterday he did hint at the possibility of taking action next month. He said he will revise his policy next month when his economists release their projections in early June. This morning’s soft economic updates from Germany and Italy underline the problems in the region.
As Alastair McCaig stated, the euro was approaching the $1.4 mark yesterday before Mr Draghi’s statement, but now we are approaching the $1.38 level. If speculation suggests that the ECB will loosen its monetary policy we could head towards the $1.3750 level. We would need strong economic data from the eurozone to retest the $1.4 mark.