After falling yesterday, the euro is up this morning. As yesterday was a holiday in many key Eurozone countries (All Saints Day), there were no significant economic data releases. We remain neutral on the euro in the short-term. Given that the currency is approaching oversold conditions, the euro is likely to enjoy a short-term rebound in the near future. This is especially true against the US dollar. Looking at news, German coalition talks continue to stall according to recent reports from Reuters. After Merkel's poor performance in the German elections, the outcome of the coalition discussions remains uncertain.
The EUR/USD exchange rate is now below 1.17 and is trading close to 1.1660. Looking at EUR/JPY, the pair continues to rebound and is currently trading just above 132.80. The euro has been flat against the pound recently, with EUR/GBP now trading below 0.8780.
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. Later today, 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.