The euro has now gained for three days in a row. Earlier, we warned that the currency looked oversold in the short-term, and was likely to rebound. Given Draghi's upcoming speech this week, speculation that the ECB is set to taper its quantitative easing program is rising. Yesterday, the ECB's Lautenschlaeger suggested that the bank "should begin reducing...bond purchases next year". She further claimed that "From my point of view, it is important that we really move towards the exit – step by step, but steadily and in a clear direction.” The euro rose as a result, and has continued climbing today. In political news, Spain's EFE newswire is reporting that the Catalan President is set to announce "gradual independence", following earlier reports that he may declare independence unilaterally today. Yesterday, we upgraded our outlook on EUR/USD to neutral.
The EUR/USD exchange rate is now above 1.1780. Looking at EUR/JPY, the pair is up slightly and is currently just above 132.50. Despite recent pound strength, the euro is up against the pound this morning, with EUR/GBP now trading above 0.8940.
This is a fairly light week for the euro in terms of economic data releases. The most important day this week is Thursday, which will include industrial production figures and a speech by Draghi. Speculators who are long euros continue to patiently wait for the ECB to announce that it will taper its quantitative easing program later this year. Thus Draghi’s speech will be watched closely for any clues that the upcoming ECB meeting will contain the big announcement that speculators have been waiting for.
After falling into short-term oversold territory, the euro staged a small rebound on October 6. As such, we are upgrading the currency to neutral. Risks from Spain's Catalonia region are also falling as the regional government has not pursued a unilateral declaration of independence. Looking at technicals, the currency remains oversold 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.