EUR/USD: EUR gains on dollar’s pains

• Strength of EUR is a function of dollar weakness.
• ECB’s Lautenschlaeger sounded quite hawkish today.

EUR/USD is now trading around 1.2492, in the New York session, up by almost 0.34% and so far made a high of 1.2509 on a plunge in USD and prospects of German political stability. Earlier  theEUR was getting stronger as Q4 GDP expanded right on expectations and Eurozone December industrial production  rose more than expected.

Today, although Spanish CPI came upbeat, trade balance figure was muted at 25.4B vs. an estimate of 30.2B (prior: 26.3B); this may be a function of a stronger currency (EUR).

Elsewhere, ECB's Lautenschlaeger said that there might be a need for more macroprudential policy; i.e. a tightening of existing borrower-based measures. Lautenschlaeger also commented that toolbox defined by the EU legal framework may be too small to address all types of systemic risk, but that the stability risks is not too pronounced now.

Thus, Lautenschlaeger sounded quite hawkish today, emphasizing deleveraging and proper risk management.

But the EUR was primarily boosted by widespread weakness in USD on the concern of twin US deficits (fiscal and budget/current account).  USD is also under pressure after terrible retail sales, muted consumer spending and a series of GDP downgrades.

As US core CPI is at 1.8% , still below Fed’s elusive target of above 2% on a sustainable basis and thus the Fed may not go for multiple 3-4 hikes in 2018, considering muted consumer spending (retail sales) and the probability of subdued GDP despite an upbeat CPI on a headline basis.

Earlier, the USD plunged after Japanese Finance Minister Aso said the yen's strength "wasn't abrupt enough" to require intervention and EURUSD subsequently made the session high of 1.2509. Technically, EURUSD is now eyeing  the 1.2536 price zone.