EUR Daily Updates

12 October 2017

The euro rally continues and the common currency is rising against most of its major global peers including the US dollar, the pound and the yen. Beyond the relief following Puigdemont's decision to 'delay' the outcome of the referendum, expectations relating to a potential ECB tapering announcement are rising. After falling into oversold territory earlier, the ongoing euro rally doesn't need many reasons to keep strengthening. Thus ECB-related expectations are likely to remain a tailwind for the common currency. We upgraded our short-term outlook to bullish today.

The EUR/USD exchange rate is now above 1.1860. Looking at EUR/JPY, the pair rose yesterday (but is down this morning) and is currently just below 133.20. Lastly, the euro is also up against the pound (but down slightly 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.

Short term outlook

After rising sharply in the second week of October, we are now bullish on the euro. The common currency is gaining as Spain's Catalonia region did not unilaterally declare independence. There are also growing expectations that the ECB is set to taper its quantitative easing program following an upcoming meeting later this month. Looking at technicals, the currency has now re-entered normal trading conditions. Earlier, the currency was looking oversold. This is based on technical indicators on the daily chart of the euro currency index. 

Medium term outlook

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.