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German bunds flat ahead of ECB President Draghi’s speech, ZEW economic sentiment for December

The German bunds traded flat Monday as investors wait to watch the European Central Bank President Mario Draghi’s speech, scheduled to be held on December 12 by 19:00GMT. Also, the country’s economic sentiment, to be published by Munich-based institute ZEW, due on the same day will add further direction to the debt market.

The German 10-year bond yields, which move inversely to its price, hovered around 0.30 percent, the yield on 30-year note remained flat at 1.13 percent and the yield on short-term 2-year traded nearly steady at -0.73 percent by 09:15GMT.

The main event in the euro area this week will be the conclusion of the ECB’s latest Governing Council meeting on Thursday. This will clearly not be as eventful as the previous policy meeting in October, when the ECB announced that it would reduce the pace of its asset purchases to EUR30 billion from January to September 2018.

So, the main policy announcement might well relate to the relative shares of public-sector and private-sector assets within the overall EUR30 billion per month envelope. But we already know from the account of the last meeting that the private sector programmes will not be adjusted in strict proportion to the overall scaling-down of the purchase programme – this week’s meeting could provide more precision.

In addition, on Thursday the ECB will publish its updated economic forecasts, which seem likely to nudge up the expected near-term growth profile, which previously foresaw GDP rising 2.2 percent y/y in 2017 and 1.8 percent y/y in 2018. As such, while recent CPI outturns have been weaker than the ECB will have hoped, the inflation forecast for 2018 and 2019, of 1.2 percent y/y and 1.5 percent y/y respectively, might be revised up too, due also to the recent increase in oil prices.

And, notably, for the first time the ECB will also publish economic forecasts for 2020. The extent of the revisions to the inflation forecast, and the proximity of the 2020 inflation forecast to the ECB’s target of below but close to 2 percent y/y, will ultimately provide the benchmark for determining whether Draghi’s announcements are eventually judged to be hawkish or dovish.

Meanwhile, the German DAX traded 0.08 percent up at 13,167.50 by 09:20 GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained highly bullish at 109.22 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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