After strengthening significantly yesterday, the euro ended the day down as the rally faltered during US trading hours. The euro is looking significantly overbought in the short-term, with EUR/USD and EUR/AUD both due for a pull back. The rally began following strong German and Eurozone GDP growth numbers. Today is another eventful day for the euro with inflation numbers set to be released in a few hours. In addition, the US House is scheduled to vote on tax cuts today. The euro is likely to trade in a range prior to these key events. Looking at economic data, Eurozone trade balances were strong and beat the prior print (€26.4b vs. €16.1b prior). Our short-term outlook on the euro is currently bullish with the caveat that the currency is looking overbought.
The EUR/USD exchange rate is now trading above 1.1790. Looking at EUR/JPY, the pair is up today and is currently trading just above 133.40. The euro is flat against the pound, with EUR/GBP now trading above 0.8950.
This is a critical week for the Eurozone, given that both GDP and inflation numbers will be announced. Eurozone GDP numbers met expectations (2.5%) while industrial production numbers beat expectations (3.3% vs. 3.2% expected). German GDP growth (2.3% vs. 2.3% expected) and inflation figures (1.5% vs. 1.5% expected) both met expectations. Eurozone trade balances were strong and beat the prior print (€26.4b vs. €16.1b prior). French CPI figures met estimates (1.2%). Later today, we’ll see German wholesale prices and Eurozone consumer price index numbers. Last week, Eurozone retail sales, composite PMIs and producer prices all beat expectations.