Following the drama of the independence referendum in Catalonia over the weekend, the euro has been selling off, and is particularly weak against the dollar. Early morning trading on October 2 has been particularly thin, given that many markets are shut due to holidays (including China, Hong Kong, South Korea and India). How the euro trades later today will be more telling. The head of Catalonia's regional government has stated that the region has won the right to independence, while this has been strongly denied by Spain's Prime Minister.
EUR/USD is now trading below to 1.770, having started the day above 1.18. Markets will be closely watching how the euro moves as foreign exchange trading begins across Europe. Looking at EUR/JPY, the euro has mostly traded sideways against the yen today, with EUR/JPY now around 132.80.
In economic data, this week includes survey data, retail sales and unemployment numbers. Today, we'll see Markit manufacturing PMIs and Eurozone unemployment data. Tomorrow we'll get producer prices. Finally, on Thursday we'll see Markit composite PMIs and Eurozone retail sales figures.
After falling consecutively in the last week of September for four days in a row, the short-term euro bear market is now taking a breather. As such we are upgrading its outlook to neutral. Looking at technicals, the currency looks slightly oversold in the short-term, based on the daily chart of the euro currency index.
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.