The euro is enjoying a small rebound this morning after weakening last Friday. The currency is rallying against the US dollar and the yen this morning, while falling against the pound and the Australian dollar. Looking at recent news, SPD leader Martin Schulz recently called for the creation of a "United States of Europe" in a recent speech. According to an article in the Financial Times, his party supports a larger Eurozone budget, an EU finance minister and a pan-EU minimum wage. Given that Merkel's CDU/CSU party is opposed to significant political integration with the EU, coalition talks are expected to be difficult. Following last week's euro sell off, we are downgrading our short-term outlook on the euro to neutral later today.
The EUR/USD exchange rate is now trading above 1.1770. Looking at EUR/JPY, the pair is up today and is currently trading just above 133.70. The euro is down against the pound, with EUR/GBP now trading above 0.8780.
This week’s Eurozone events and economic data includes an ECB meeting and German inflation figures. On Tuesday, we’ll see the ZEW survey from Germany. On Wednesday we’ll see German CPI as well as Eurozone industrial production. On Thursday we’ll see German and Eurozone Markit PMIs. More importantly, there is an ECB rate decision and statement scheduled for Thursday. Markets will be focused on the ECB’s statement as rates are widely expected to remain on hold. On Friday, we’ll see German wholesale prices and Eurozone trade balances. Last week, Eurozone Q3 GDP growth beat expectations.
As the euro weakens relative to the US dollar, we are downgrading the currency to neutral in the short-term. Looking at various technical indicators, the currency is trading within a normal range. This is based on a daily chart of the euro currency index.
As monetary policy expectations and economic growth power the euro, we are upgrading the outlook to bullish in the medium-term. Note that the euro is trading within normal ranges. Our analysis is based on various technical indicators when looking at a weekly chart.