The euro rose sharply yesterday against the US dollar and the Canadian dollar. However, the currency fell against the Australian dollar and the yen. The main news driving the euro yesterday was the announcement of US inflation (CPI) figures and the Fed meeting. Both inflation and the Fed's outlook for monetary policy disappointed USD traders, and the dollar fell sharply as a result. As such, the euro benefited from US dollar weakness. Looking at news from the Eurozone, employment and industrial production figures continue to suggest strong GDP growth. Today's ECB rate decision and meeting are expected to be a non-event. ECB President Mario Draghi previously suggested that the current quantitative easing program will not be adjusted until the latter half of 2018. Unless Draghi makes significant changes to his forecast for growth and inflation, big swings in the euro are unlikely. Our short-term outlook on the euro is neutral, while our medium-term outlook remains bullish.
The EUR/USD exchange rate is now trading above 1.1820. Looking at EUR/JPY, the pair is up today and is currently trading just above 133.30. The euro is flat against the pound, with EUR/GBP now trading above 0.880.
This week’s Eurozone events and economic data includes an ECB meeting and German inflation figures. German ZEW survey results were mixed. Economic sentiment was lower than expected (17.4 vs. 18.0 expected) while current situation was higher than expected (89.3 vs. 88.5 expected). German CPI figures met expectations (1.8%), while wholesale prices were lower than expected (3.3% vs. 3.4% expected). Eurozone employment was higher than previous figures (1.7% vs. 1.6% prior) while industrial production beat estimates (3.7% vs. 3.5%). Later today, 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.