The euro ended the day higher yesterday, and is slightly weaker this morning. German bond yields were sharply higher after the German government announced a plan to issue more 30-year bonds next year. US government bond yields have been rising this week as more issuance is expected over time thanks to tax cuts. As rising interest rates increase the relative attractiveness of holding euros and euro-denominated investments, the currency rallied as a result. In other news, recently announced Eurozone wage growth figures were lower than the previous print. Limited wage growth makes more hawkish ECB monetary policy less likely as inflation is likely to remain subdued. Our medium-term outlook on the euro remains bullish.
The EUR/USD exchange rate is now trading above 1.1830. Looking at EUR/JPY, the pair is up slightly today and is currently trading just above 133.70. The euro is flat against the pound, with EUR/GBP now trading above 0.8830.
This week’s Eurozone events and economic data includes Eurozone inflation and German survey data. Eurozone CPI figures met estimates (1.5%). German IFO survey results mostly missed expectations but were strong overall. Expectations (109.5 vs. 110.7 expected) and the Business Climate (117.2 vs. 117.5 expected) were below consensus estimates. Eurozone wage growth (1.6% vs. 2.1% prior) was lower than the previous print. Later today, 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 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.