Fundamental Forecast for Euro: Bearish

- European Central Bank Reiterates Dovish Tone
- Industrial Outputs Jump Higher in February
- Euro-Zone CPI Disappoints

The Euro failed to maintain the rebound from the monthly low (1.3282) and slipped back below the 50-Day SMA (1.3576) as investors held a cautious outlook for the region. The European Central Bank maintained a dovish outlook in its monthly report as President Jean-Claude Trichet expects growth and inflation to remain "moderate" over the medium-term, and policy makers reiterated that “current rates remain appropriate” as the central bank expects to see an “uneven” recovery this year.

At the same time, the highest-rated economic institutions in Germany argued that the International Monetary Fund should lead the bailout efforts for Greece as the bilateral loans from the EU goes against the Maastricht Treaty in “spirit,” and went onto say that “the spending-cut targets set by the government in its stability program and consolidation plan don’t seem to be realizable” as economic conditions remain weak. In addition, European policy makers argued Portugal’s initiatives to balance its budget is “ambitious” after Fitch cut the nation’s rating and held a negative outlook for the region, and the group went onto say that the nation should take further steps to bring its public finances back in-line with the stability pact.

Nevertheless, Credit Suisse index swaps are currently 60bp higher after rising as much as 75bp in March and the uncertainties surrounding the economic outlook may drag on the interest rate outlook over the following week as the Governing Council aims to balance the risks for the countries operating under the single-currency. Nevertheless, the economic docket for the following week is expected to show a rise in German producer prices, while investor and business confidence in Europe’s largest economy is expected to improve further in April, and the data could instill an enhanced outlook for the Euro-Zone as the recovery gathers momentum. In addition, manufacturing is expected to expand at a slower pace, while the PMI services is forecasted to increase to 55.2 in April from 54.9 in the previous month, but currency traders may turn a blind eye to the economic developments as the uncertainties for Greece linger.

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