MAY 15 Euro-zone GDP (YoY) (1Q A) (9:00 GMT; 5:00 EDT)
Expected: 1.9%
Previous: 2.2%

Euro-zone CPI (YoY) (APR) (9:00 GMT; 5:00 EDT)
Expected: 3.3%
Previous: 3.6%

While European Central Bank President Jean-Claude Trichet maintained his hawkish posture during the press conference following the ECB’s last policy meeting and brushed off the downside risks to growth, upcoming economic data may give him reason to reconsider his position. Euro-zone GDP during the first quarter is expected to have slowed to an annualized pace of 1.9 percent from 2.2 percent, the weakest reading since the third quarter of 2005. The latest retail sales report for the Euro-Zone reflected a sharp 1.6 percent drop on an annual basis from a previous reading of 1.0 percent. Meanwhile, consumer confidence remains pessimistic as the European Commission’s index has held at a dismal -12 for the past four months, while business sentiment has slowly deteriorated for the past five months. Furthermore, lackluster demand in Europe and abroad has led manufacturing activity to steadily declined, as PMI hit a record low of 50.7, barely signaling expansion. In short, it has become clear that the global slowdown in growth is beginning to spillover into Euro-zone economy.

Meanwhile, Euro-zone CPI is forecasted to pullback to 3.3 percent from 3.6 percent, but such a move may not carry significant weight with the markets given comments from the ECB Q&A session on May 8 in which Trichet said, "...we don’t draw particular conclusions from the fact that headline inflation came down from 3.6 percent to 3.3 percent...We continue to consider that inflation will be high for a protracted period of time, as is seen. Again, I don’t draw a lot of consequences from what we are observing from one month to the other; we have volatility and we have to remain cautious and prudent." As a result, the market’s focus may be trained on the Euro-zone GDP figure, but if Euro-zone CPI misses forecasts by a large margin, the news may shake up interest rate expectations rather quickly.

Bonds – 10-Year German Bund Futures

Bunds have fallen quite a bit from Fibonacci resistance at 115.15 and may be targeting support at 113.20, as any possibility of a significant rebound in the contract appears to have faded in the near-term. Upcoming Euro-zone economic releases may shake up Bunds, as first quarter GDP and CPI figures will both be released. Any upside surprises could weigh the contract closer to support, but if the data falls more than expected, Bunds may have an opportunity to recoup their losses.

FX – EUR/USD

The EUR/USD decline from the record highs just above 1.60 has bounced from the 38.2 percent fib of 1.4437 – 1.6018 at 1.5400/15, and while immediate resistance looms at 1.5555, there are signs the pair will climb higher. First, looking at the most recent COT report, the bearish extreme in the euro has been realized as the 52 and 13 weeks indexes are at 2 and 8 after holding at 0 last week, which has bullish implication for EUR/USD. Furthermore, according to Technical Strategist Jamie Saettele’s Daily Technical Report, “The decline from 1.6018 began as an impulse but has failed to continue as one. This does not necessarily mean that the EURUSD uptrend will resume (although it could) but it does mean that at least a sizeable bounce is due…To the classical chartist, price is forming a clear inverse head and shoulders pattern which would be confirmed on a break through 1.5570.” Upcoming economic data out of the Euro-zone provides heavy event risk for EUR/USD, as both GDP and CPI data will be released. If either figure slows much more than expected, the news could weigh EUR/USD back down toward 1.54. On the other hand, a better-than-expected GDP or CPI figure could propel EUR/USD higher, as the news would support ECB President Trichet’s consistently hawkish bias.

Equities – Xetra DAX Index

The Xetra DAX index has done nothing but consolidate within a rising wedge over the past few weeks, but it may only be a matter of time before this bearish formation resolves with a break below near-term support near the 7,000 level. While risk trends may remain a greater driver of the index, upcoming Euro-zone GDP and CPI releases could spark volatility. Indeed, both GDP and CPI are forecasted to ease lower, but the GDP reading may have greater bearing on price action as slowing expansion would suggest that weaker domestic demand may hurt profits at German firms. On the other hand, a surprisingly strong GDP figure could keep the DAX within range.

Terri Belkas is a Currency Strategist at FXCM.