French Industrial Production, EUR/USD, EUR/GBP

Monday’s a light day for economic news and so the update on industrial production for France — the leading number of substance today — may receive more attention than usual. In turn, the data vacuum raises the possibility that the EURUSD and EURGBP will be unduly influenced in the day’s trading session, for good or ill, by the number du jour from Paris.

France Industrial Production (07:45 GMT) The economy in France is still weak by several measures, to say the least, but the question is whether any of the key indicators are showing signs of marginal improvement. The November update on industrial production passes the test, with economic activity in this sector posting the first monthly increase since August. Will we see more improvement in today’s December reading? I’m not optimistic based on running the numbers through several econometric models, which anticipate a decline.

If you’re inclined to think positively, the small uptick in the December monthly business survey for France lends a bit of optimism for anticipating today’s industrial production report. But that's weak tea compared with the ongoing slide in the Markit Manufacturing Purchasing Managers Index for France, which continues to remain deeply depressed through January, according to last week’s update. In any case, the day’s trading environment for the euro will be at the mercy of one number, and the odds don't look good for an upside surprise.


EURUSD The European Central Bank (ECB) left its target rate unchanged at 0.75 percent last week. ECB head Mario Draghi also put the euro’s recent strength on everyone’s radar when he said that "the appreciation is, in a sense, a sign of return of confidence in the euro". But Mr Draghi also noted: "The exchange rate is not a policy target, but it is important for growth and price stability and we certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned." Analysts interpreted that comment as a sign that the central bank is becoming uncomfortable with the euro’s recent gains, in part because a stronger currency will pinch exports by making European goods and services more expensive in foreign markets. No surprise, then, that the EURUSD is trading lower in recent sessions. If a rebound requires another round of encouraging economic news, today’s industrial production report for France doesn’t look up to the job, as noted above.
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EURGBP UK industrial production delivered a better-than-expected increase in last week’s December update. That’s likely to present a sharp contrast with today’s news on industrial production in France, the only major macro release for Europe. Then again, the Eurozone can point to the recent batch of upbeat economic reports from Germany to offset any weakness in today’s data out of Paris. But with Mr Draghi’s comments still reverberating across the forex markets (see above), the odds for a new rally for the EURGBP face some headwinds.
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