EUR Daily Updates

04 October 2017

The euro is bouncing back this morning, after entering oversold conditions earlier in the week. In news, the political drama in Catalonia continues. Puigdemont, the regional parliament's current leader, recently told the BBC that he would be looking to declare independence in a matter of days. In our take on the subject yesterday, we wrote that while  Catalonia has had a muted impact on the euro so far, the real risks will unfold later this week. If Puigdemont follows through on his intent to declare independence, the risk of violence and continued instability will rise accordingly. 

EUR/USD is now trading above 1.1760, having bounced off 1.17 yesterday. Looking at EUR/JPY, the pair has been flat for several days in a row now, with the pair currently around 132.50. 

In economic data, Monday's manufacturing PMIs and unemployment figures both missed expectations (but to a very small degree). Unemployment came in at 9.1% vs. 9% expected while Markit manufacturing PMIs came in at 58.1 vs. 58.2 expected. Yesterday, producer prices beat expectations (2.5% vs. 2.3% expected) suggesting that rising inflation may be around the corner. Finally, on Thursday we'll see Markit composite PMIs and Eurozone retail sales figures. 

Updated 
Short term outlook
Neutral

Despite the political drama in Catalonia, the euro is bouncing back after entering oversold territory earlier this week. We are now neutral on the common currency. Earlier, we were bearish following the referendum in Spain's Catalan region and the ECB's hesitation to turn hawkish. Looking at technicals, the currency looks oversold based on the daily chart of the euro currency index. 

Medium term outlook
Bearish

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. 

Updated