The euro is slightly higher this morning against the US dollar and the yen, while trading sideways versus the pound. Last Friday, Germany's SPD party agreed to pursue talks with Angela Merkel's CDU/CSU party regarding another 'grand coalition'. According to Reuters, Schulz said that the party has a responsibility in the interest of political stability. Talks are expected to begin in early January. As the agreement needs to be ratified by party members, the formation of a new government is likely to be months away. As the euro increasingly trades in a narrow range, our short-term outlook on the common currency is neutral. If the medium-term bull market fails to gain momentum over the coming weeks, we will consider downgrading our medium-term outlook to neutral as well. For now, the medium-term bull market remains intact.
The EUR/USD exchange rate is now trading above 1.1760. Looking at EUR/JPY, the pair is up today and is currently trading just above 132.50. The euro is flat against the pound, with EUR/GBP now trading above 0.8810.
This week’s Eurozone events and economic data includes Eurozone inflation and German survey data. On Monday we’ll see Eurozone CPI figures. On Tuesday, we’ll get German IFO survey results and Eurozone wages. On Wednesday we’ll see German producer prices. Finally on Friday we’ll see German consumer confidence. Last week, the ECB upgraded its outlook for growth and inflation while maintaining its current monetary policies.
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.