The euro is flat against most currencies this morning, but is weakening against the dollar. Spanish stocks rose yesterday, suggesting growing risk appetite despite the political drama in Catalonia. EUR/USD is falling thanks to increasing optimism regarding Trump's tax reforms. Looking at news, the ECB's minutes released yesterday mostly echoed Draghi's earlier comments. The ECB reiterated the need for monetary accommodation in order to build inflation pressures. Any future changes to monetary policy are likely to be gradual.
EUR/USD has been down for two days in a row, with the exchange rate now falling to around 1.1690. Looking at EUR/JPY, the pair fell yesterday but is trading flat today. The exchange rate is currently just below 132.120.
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. on Tuesday, producer prices beat expectations (2.5% vs. 2.3% expected) suggesting that rising inflation may be around the corner. Finally, on Wednesday we saw strong Markit composite PMIs and weak Eurozone retail sales figures.
After falling on increasing political risks from Spain's Catalonia region, we are downgrading the euro back to bearish. Looking at technicals, the currency looks oversold based on the daily chart of the euro currency index. While this typically signifies turning points, the trend remains 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.