After strengthening yesterday, the euro is trading sideways this morning. Over the last two days, Eurozone bond yields (particularly German government yields) have strengthened significantly. This has helped the euro strengthen against its major peers including the US dollar and the yen. Looking at economic data, German producer prices were lower than expected while the Eurozone current account surplus was smaller than the previous print. With the US dollar likely to remain weak thanks to the poor outlook for inflation, our view is that the euro bull market is likely to continue for the next few weeks. Our medium-term outlook on the euro remains bullish.
The EUR/USD exchange rate is now trading above 1.1870. Looking at EUR/JPY, the pair is up slightly today and is currently trading just above 134.70. The euro is flat against the pound, with EUR/GBP now trading above 0.8880.
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. German producer prices missed expectations (2.5% vs. 2.6% expected). 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.