The euro fell sharply yesterday against all of its major peers, and especially against the US dollar. While the market was expecting the ECB to define an end date to the Bank's quantitative easing program, the ECB chose instead to leave this question for later in 2018. Instead, the ECB reduced the pace of asset purchases by €30b, halving the size of the program. After the ECB meeting, the euro continued falling later in the day after the US House of Representatives passed a Senate budget resolution. The budget resolution unlocks reconciliation, a process that will allow Trump to pass tax reforms with a simple majority in the Senate (instead of a three-fifths majority). This substantially increases the odds of tax reforms getting through, thus driving the dollar higher.
The EUR/USD exchange rate is now below 1.17 and is trading close to 1.1630. Looking at EUR/JPY, the pair is currently trading just below 132.90. The euro is also down against the pound, with EUR/GBP now trading below 0.8870.
On Tuesday, Eurozone Manufacturing PMIs beat expectations (58.6 vs. 57.8 expected) while services and composite figures were below estimates (55.9 vs. 56.5 expected). Wednesday's IFO survey covering expectations (109.1 vs. 107.3 expected) beat average estimates. The ECB failed to meet the market's tapering expectations, choosing instead to reduce the scope of the existing program without defining a clear end date.
Following the ECB meeting, we are downgrading the euro to bearish in the short-term. Looking at various technical indicators, the currency is neither oversold nor overbought and is trading within normal conditions.
Following the ECB meeting, our medium-term outlook on the euro is back to bearish. While the currency looked overbought in mid-October, this is no longer the case today and the euro is trading within normal ranges. This is based on various technical indicators when looking at a weekly chart.