Ahead of the weekend the Euro US Dollar exchange rate slumped sharply in response to disappointing Eurozone trade balance data.
Markets were unsettled to find that the currency union had posted a surprise deficit of 600 million in January, its first since 2014.
This naturally undermined confidence in the outlook of the Eurozone economy, reversing some of the relief rally that followed the Dutch election results.
A sharp contraction in Eurozone construction output also weighed on the single currency, leaving the EUR USD exchange rate with little in the way of support.
The threat of a populist upset in the French presidential election remains, meanwhile.
Although centrist candidate Emmanuel Macron has continued to lead National Front leader Marine Le Pen in opinion polls the result is still far from sealed.
Political worries are thus likely to hamper the single currency for the foreseeable future, particularly if fears over Greece reignite.
Monday’s Eurogroup meeting will not see the Greek bailout review signed off, leaving room for renewed speculation over the outlook of the Hellenic nation.
German producer prices could offer EUR exchange rates a particular rallying point, meanwhile, if signs continue to point towards rising inflationary pressure.
While the European Central Bank (ECB) is unlikely to shift from its neutral policy bias any time soon this could still boost the appeal of the Euro.
The US Dollar found a fresh rallying point on Friday as the University of Michigan consumer confidence survey surprised to the upside.
Particularly encouraging was the current conditions index, which leapt to its highest reading since November 2000.
As James Knightley, senior economist at ING, noted:
‘This all points to a household sector that is in excellent shape and which is likely to continue spending strongly. Oddly, inflation expectations dipped modestly despite the pick-up in all of the actual measured inflation series.’
Despite the Federal Reserve’s more cautious tone at its March meeting the strong underlying fundamentals of the US economy are likely to keep the ‘Greenback’ on a solid footing.
Another positive showing from the Chicago Fed national activity index could put additional pressure on the EUR USD exchange rate during Monday’s European session.
Commentary from various Fed policymakers could provoke some volatility for the US Dollar, even though these are unlikely to alter market pricing of the interest rate outlook.
However, if markets adopt a more bullish outlook in the absence of major US ecostats the ‘Greenback’ may struggle to hold onto its recent gains.