The euro remains lacklustre, despite accelerating GDP growth figures (2.5%) and lower-than-expected unemployment figures (8.9%) announced yesterday. Instead, markets have been disappointed by low inflation rates (1.4%) which remain below expectations. Now that the ECB event has passed, we published a thought piece on how politics and economic data will drive euro trading for the next few quarters. Despite ongoing doubts regarding inflation, our view is that inflation is set to accelerate for the rest of 2017 thanks to rising crude oil prices. The bigger question for the euro is to what extent Germany will seek to drive greater political unity in the Eurozone. Given the tough coalition negotiations (following the elections), Germany is more likely to turn inwards in the near future.
The EUR/USD exchange rate is now below 1.17 and is trading close to 1.1640. Looking at EUR/JPY, the pair has rebounded and is currently trading just above 132.50. The euro continues to weaken against the pound, with EUR/GBP now trading below 0.8760.
This is a fairly critical week for the Eurozone, with lots of important data on the weekly schedule. German retail sales (4.1% vs. 3.0% expected) beat expectations while CPI (1.6% vs. 1.7% expected) missed. Eurozone economic sentiment also beat expectations (114 vs. 113.4) while consumer confidence met expectations (-1 vs -1 expected). Q3 GDP numbers (2.5% vs. 2.4% expected) were strong, while inflation (1.4% vs. 1.5% expected) disappointed. Finally on Thursday, we’ll see German unemployment and German Markit manufacturing PMI. Last week, 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.
After the euro enjoyed a small rebound, we are upgrading the euro to neutral 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.