The euro is down this morning after German coalition talks collapsed. According to Reuters, the FDP have withdrawn from negotiations. Germany now has two options to move forward: Angela Merkel can either form a minority government or the German President will have to call new elections if no government is formed. If Merkel forms a minority government, she runs the risk of becoming a 'lame duck' Chancellor with limited powers to enact changes. Given this development, Macron's vision for a more financially integrated European Union is looking less likely. Our short-term and medium-term outlook on the euro remains neutral.
The EUR/USD exchange rate is now trading above 1.1730. Looking at EUR/JPY, the pair is down today and is currently trading just above 131.60. The euro is down against the pound, with EUR/GBP now trading above 0.8880.
This week’s Eurozone events and economic data includes a speech by Draghi, the EU’s financial stability review, Eurozone Markit PMIs and German IFO numbers. On Monday Draghi will give a speech and we’ll see German producer prices. On Tuesday, we’ll the EU’s financial stability review. On Wednesday, we’ll see Eurozone consumer confidence. On Thursday we’ll see German GDP and Eurozone Markit PMIs. We’ll also see the ECB’s policy meeting accounts. Lastly, on Friday we’ll see IFO survey data. Last week, Eurozone GDP numbers met 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.