The euro rose yesterday, particularly against the US dollar, and is no longer looking oversold. As US bond yields fell sharply following the release of the Senate tax plan, the interest rate differential between US and Eurozone bond yields fell, helping the euro strengthen. Looking at news from the Eurozone, the European Commission has announced that the economic area is set to grow at its fastest rate in a decade. According to its estimates, GDP growth this year is estimated to be 2.2%, up from 1.8% last year. Earlier, the Commission had estimated 2017 GDP growth of 1.7%. The Commission further estimates that growth is set to slow in 2018 and 2019, falling to 2.1% and 1.9%, respectively.
The EUR/USD exchange rate is now trading above 1.1630. Looking at EUR/JPY, the pair has been flat for the last four sessions and is currently trading just above 132.0. The euro is up against the pound, with EUR/GBP now trading above 0.8860.
This week’s Eurozone economic calendar includes a fair amount of survey data and trade balance figures. On Monday, Eurozone Markit Composite PMIs beat expectations (56 vs 55.9 expected). Eurozone producer prices were also above expectations (2.9% vs. 2.8% expected). German industrial production missed expectations (3.6% vs. 4.4% expected) while Eurozone retail sales (3.7% vs. 2.7% expected) beat expectations. German current account balances were higher than expected (€25.4b vs. €25b expected). Last week, GDP growth figures exceeded expectations while inflation came in below estimates.
As the euro rebounds from oversold conditions, we are upgrading the currency to neutral in the short-term. Looking at various technical indicators, the currency was looking oversold earlier but is now 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.