The euro is mostly flat today and is trading sideways against the US dollar and the British pound. Looking at recent economic events, the German Bundesbank has stated that German growth continues at a very high rate. While inflation is improving, changes in energy prices have been the main driver of recent inflation (as opposed to higher capacity utilization). In German coalition news, the SPD is pushing for more concessions from Angela Merkel after a narrow vote to pursue a formal coalition. According the Financial Times, Merkel's CDU/CSU party is resisting re-opening negotiations. In Italian politics, the 5-Star Movement has eliminated its previous intention of pursuing a referendum on the euro. This lowers the risk of Italy leaving the Eurozone if the party rises to power. The 5-Star Movement leads Italian opinion polls (28%), but is unlikely to rise to power without forming a coalition government. An alliance of center-right parties led by Silvio Berlusconi are polling at 37% according to a Reuters report. Neither the 5-Star Movement nor incumbent center-right parties are likely to form a ruling majority government based on recent polling figures. Our short-term and medium-term outlook on the currency remains bullish.
EUR/USD is currently up and trading above 1.2260. The euro is up slightly against the yen, with EUR/JPY trading above 136.10. Finally, the euro is flat against the pound, with EUR/GBP above 0.8760.
Looking at Eurozone economic data and events, markets will be watching this week's ECB meeting and PMIs. Later today, we'll see the German ZEW survey and Eurozone consumer confidence. On Wednesday we'll see Markit PMIs (manufacturing, services, composite). On Thursday, we'll see German Gfk consumer confidence and the IFO business survey. More importantly, traders will be paying close attention to the ECB's press release and statement. No changes in monetary policy are expected. Last week, Eurozone inflation figures met expectations.
As the euro strengthens, we are upgrading the currency to bullish in the short-term. Looking at various technical indicators, the currency is currently trading within a normal range. This is based on a daily chart of the euro currency index.
As the euro continues to strengthen, we are upgrading the outlook to bullish in the medium-term. Note that the euro is currently looking overbought. Our analysis is based on various technical indicators when looking at a weekly chart.