The rapid turnaround and then somewhat relentless rise in EUR/USD yesterday, despite a weaker then expected ZEW index for May can partly be explained by the surge in German PPI and the comments from ZEW president and German “wise man” Franz, that he believes the ECB will raise rates in the near future. The back-up in oil prices will tend to support EUR/USD and add to general USD weakness. Meanwhile, the CHF´s outsized gains can be explained by the drop in risk appetite seen via the equity market decline. USD/JPY probably held up better yesterday on the surge in EUR/JPY, but this has corrected during Asia overnight. Still robust growth in Germany and the Euro Zone in Q1, together with the shift in focus to inflation expectations has camouflaged for now signs of a weaker Euro Zone data and EUR weakness. This view can turn again quickly and without warning, especially if Euro Zone data disappoints. FX markets are fickle just now. Today´s release of the German ifo index and the release of Euro zone PMIs on Friday therefore represent a risk for the EUR in case they remain notably below market expectations. The FOMC minutes are unlikely to close the door firmly to any further rate cut but will instead underpin the idea of a Fed rate pause. In the current market environment, though, the minutes are unlikely to find much attention or support the USD sustainably. A below consensus ifo index decreases the chances that EUR/USD manages to establish above 1.5650-80, confirming a break out of the well-known trading range.

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