EUR, JPY flows: EUR weaker as GDP disappoints

Weaker than expected German GDP at -0.2% and Italian GDP at 0.0% in Q4 makes it likely that Eurozone GDP will come in below the consensus 0.1%. France was also weaker than expected at -0.1%, but Spain had been stronger at 0.8%, so it’s a close call but a flat quarter looks likely. EUR/USD has dropped around 15 pips on the weaker data, but we wouldn’t expect a big decline. While the current data is quite soft, particularly in France and Germany, there are some positive signs from stronger bank lending, and the ECB if anything might emphasises these green shoots at today’s meeting. Additionally, the US data later is likely to come in below the published consensus after yesterday’s big trade deficit. EUR/USD should consequently hold near 1.04, but we still see some downside scope for USD/JPY and EUR/JPY.