Talking Points:

Markets Likely to Look Past German Jobs Data, Focus on Flash CPI Print
Euro May Decline if Soft Inflation Figures Fuel ECB Stimulus Speculation
US Dollar May Extend Rebound on Pro-Taper Fed-Speak, Durables Data

The Euro is likely to look past another decline in German Unemployment to focus on the preliminary set of German CPI figures as the markets remain focused on the implications of continued disinflation for the trajectory of ECB monetary policy. The currency bloc’s largest economy is expected to see the ranks of the jobless shrink by 10,000 in February while the unemployment rate holds unchanged at 6.8 percent. The outcome carries relatively limited near-term implications for Mario Draghi and company on its own, whose narrow mandate keeps them focused on price stability.

On that front, forecasts calling for Germany’s headline year-on-year inflation rate to print at 1.3 percent in February – unchanged from the prior month – may surprise on the downside after leading Markit PMI data pointed to a six-month low in the pace of price growth. A soft print stands to amplify speculation about an expansion of ECB stimulus efforts, particularly after region-wide inflation expectations priced into bond yields (the so-called “breakeven rate”) fell to the lowest since June 2012 yesterday. Needless to say, such an outcome would bode ill for the single currency.

Elsewhere on the docket, Swiss GDP data is expected to show the economy added 0.4 percent in the fourth quarter. A print in line with expectations would mark a narrow deceleration from the 0.5 percent recorded in the three months through September but fall broadly in line with trend averages established over recent years. Furthermore, with the SNB forecasting a slow rise in headline inflation that keeps the baseline rate below 1 percent through 2015, central bank officials seem to have no near-term reason to adjust the stance of monetary policy in either the hawkish or the dovish direction. As such, the impact of a status-quo GDP print on the Swiss Franc is likely to be limited at best.

Later in the day, the spotlight returns to Fed Chair Janet Yellen as she testifies before the Senate Banking Committee. While the newly-minted central bank chief’s prepared remarks will be familiar from a similar sit-down in the House of Representatives two weeks ago, the Q&A session may carry some market-moving potential. Dallas Fed President Richard Fisher – a 2014 FOMC committee member and vocal hawk – is likewise due to hit the wires. Both policymakers are likely to toe a familiar line, arguing in support of continued gradual “tapering” of QE asset purchases. This coupled with a marginal improvement expected of January’s Durable Goods Orders data may continue to push the US Dollar higher after the currency secured its strongest gain in a month yesterday.

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