After strengthening significantly yesterday, the euro ended the day down as the rally faltered during US trading hours. The euro is looking significantly overbought in the short-term, with EUR/USD and EUR/AUD both due for a pull back. The rally began following strong German and Eurozone GDP growth numbers. Today is another eventful day for the euro with inflation numbers set to be released in a few hours. In addition, the US House is scheduled to vote on tax cuts today. The euro is likely to trade in a range prior to these key events. Looking at economic data, Eurozone trade balances were strong and beat the prior print (€26.4b vs. €16.1b prior). Our short-term outlook on the euro is currently bullish with the caveat that the currency is looking overbought.
The EUR/USD exchange rate is now trading above 1.1790. Looking at EUR/JPY, the pair is up today and is currently trading just above 133.40. The euro is flat against the pound, with EUR/GBP now trading above 0.8950.
This is a critical week for the Eurozone, given that both GDP and inflation numbers will be announced. Eurozone GDP numbers met expectations (2.5%) while industrial production numbers beat expectations (3.3% vs. 3.2% expected). German GDP growth (2.3% vs. 2.3% expected) and inflation figures (1.5% vs. 1.5% expected) both met expectations. Eurozone trade balances were strong and beat the prior print (€26.4b vs. €16.1b prior). French CPI figures met estimates (1.2%). Later today, we’ll see German wholesale prices and Eurozone consumer price index numbers. Last week, Eurozone retail sales, composite PMIs and producer prices all beat expectations.
As the euro rebounds following the disappointment of the recent ECB meeting, we are upgrading our outlook to neutral. While the currency looked overbought earlier, this is no longer the case today and the euro is trading within normal ranges. Our analysis is based on various technical indicators when looking at a weekly chart.