The euro continues to fall this week. After initially falling on the disappointing outcome of the German elections, the currency has continued to weaken for a variety of reasons. Euro bulls continue to await action from the ECB, given expectations that the Bank will taper its current quantitative easing program. The euro is also suffering from overly optimistic sentiment towards the currency. As speculators remain significantly long the common currency, sentiment is working against the euro as speculators struggle to exit their large positions as the currency weakens. The euro has been especially weak against the dollar, which is now rebounding thanks to rising interest rate hike expectations and Trump's tax reform proposal.
EUR/USD is now below 1.1740, having started the week closer to 1.1950. The currency has mostly held up against the yen in the past few days, and is currently trading near 132.50. After falling earlier this week, the euro is also holding up against the pound, with EUR/GBP continuing to maintain 0.8770.
In economic data, this is a fairly light week. We'll see consumer confidence and inflation expectations data on Thursday. This is followed by flash inflation figures this coming Friday. Last week saw PMI data for both manufacturing and services beat estimates.
We are downgrading the medium term outlook on the euro to bearish, after many months of maintaining a positive or neutral outlook on the common currency. The euro began its most recent sell-off following the German elections on September 24. The euro has been particularly weak against the US dollar, which is now rebounding after many months of weakness. We continue to believe that the euro is overbought, based on various technical indicators when looking at a weekly chart.