Yesterday was a great day for the common currency. The euro strengthened against almost all of its major peers including the US dollar, the yen and the pound. Catalonian President Puigdemont moved away from unilaterally declaring independence, and chose instead to suspend the consequences of the vote "for weeks". As this substantially raises the odds of a negotiated settlement, the euro rose as political tensions subsided. Earlier, we wrote that expectations relating to the ECB's tapering announcement are rising. Given Draghi's upcoming speech this week, ECB-related expectations are likely to remain a tailwind for the common currency. We have upgraded our medium-term outlook on the euro to neutral accordingly.
The EUR/USD exchange rate is now above 1.1820. Looking at EUR/JPY, the pair rose yesterday and is currently just above 132.850. Lastly, the euro is also up against the pound this morning, with EUR/GBP now trading above 0.8960.
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 rallying in the second week of October, our medium-term outlook on the euro is now neutral. The currency is appreciating as the ECB is expected to announce its decision to taper quantitative easing next year. Recently, Catalonia's president also avoided a unilateral declaration of independence, choosing instead to call for dialog while accepting the mandate of the referendum. We continue to believe that the euro is overbought, based on various technical indicators when looking at a weekly chart.