After last week's sharp fall, the euro has been mostly trading sideways this week. As US bond yields narrow versus yields on euro-denominated bonds, the euro is more likely to rally from current levels. Looking at economic data, German unemployment met expectations last night, while Markit manufacturing pointed to continued growth. The trend of optimistic survey data alongside with low unemployment continues. In line with our broader commentary on Eurozone economics, GDP growth looks strong. Thus recent economic data has been broadly supportive for the euro.
The EUR/USD exchange rate is now below 1.17 and is trading close to 1.1660. Looking at EUR/JPY, the pair is flat today is currently trading just above 132.90. The euro rose sharply against the pound yesterday, with EUR/GBP now trading above 0.8930.
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. German unemployment met expectations (5.6% vs. 5.6% expected), while German Markit manufacturing PMI was a small beat (60.6 vs. 60.5 expected). 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.