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Euro stable as ECB notes unwanted currency strength

Euro daily update


Euro daily update

The euro is mixed today - the common currency is strengthening against the Japanese yen while selling off against the Australian dollar. The euro is flat the US dollar and the British pound. Yesterday, the euro sold off after ECB minutes suggested that the Governing Council is concerned regarding the strength of the currency. The common currency also weakened in relative terms, as the US dollar surged alongside rising US Treasury bond yields. 

While previous comments from Governing Council member Nowotny and President Draghi were relatively upbeat, the minutes suggest that the ECB is far from certain with regards to tightening monetary policy in the near future. As Eurozone growth and inflation decelerate, the case for ending quantitative easing and raising negative interest is no longer clear. As a result, the euro rally has run out of steam. Looking at recent data, year-over-year Eurozone industrial production missed estimates yesterday, while today's inflation figures from Germany were below the ECB's target rate. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.    

EUR/USD is flat and trading above 1.2310. The euro is up slightly against the yen, with EUR/JPY trading above 132.480. Finally, the euro is flat against the pound, with EUR/GBP above 0.8660.

Looking at economic data from the Eurozone, traders will be focused on trade balance numbers. German February trade balances (€19.2b vs. €21.4b expected) were lower than expectations. ECB President Mario Draghi suggested that wages and inflation will accelerate this year. Eurozone industrial production (2.9% vs. 3.8% expected) was significantly below expectations. German consumer price index figures for March (1.6%) met expectations. Later today, we'll see Eurozone trade balances. Last week, German factory orders and industrial production missed expectations by a wide margin. 


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