The euro is stronger against most currencies today, except the US dollar and the Canadian dollar. Looking at EUR/USD, the pair gave up its gains yesterday after the US Federal Reserve signaled confidence regarding future growth and inflation. EUR/CAD is flat thanks to optimism for Canadian growth following the latest GDP figures. Turning to economic data, Eurozone inflation and unemployment figures both met consensus estimates yesterday. While unemployment figures are low thanks to strong economic growth, inflation remains weak. As the euro strengthens, the outlook for inflation is also weak. Looking at German coalition news, Reuters is reporting that ongoing negotiations are bearing fruit. The two sides have now agreed on topics including climate change, EU policy and national pensions. Yesterday, both sides came to an agreement on the question of refugee family reunions. Another 'grand coalition' between the SPD and CDU/CSU is looking more likely, which is supportive for the euro. Our short-term and medium-term outlook on the euro remains bullish.
EUR/USD is currently flat and trading above 1.2410. The euro is up against the yen, with EUR/JPY trading above 135.820. Finally, the euro is up slightly against the pound, with EUR/GBP above 0.8750.
Looking at Eurozone economic data this week, markets will be watching GDP growth, inflation and retail sales figures. The German consumer price index (1.4% vs. 1.6% expected) was below consensus estimates. Eurozone Q4 GDP growth (2.6%), services sentiment (16.7), industrial confidence ( 8.8)and economic sentiment (114.7) were all slightly below consensus estimates. Consumer confidence (1.3) met estimates. German retail sales (-1.9% vs. 2.8% expected) missed estimates by a wide margin while unemployment (5.4% vs. 5.5% expected) beat expectations. Eurozone unemployment (8.7%) and the YoY consumer price index (1.3%) met expectations. Later today, we’ll see Eurozone Markit manufacturing PMIs. Finally on Friday, we’ll see Eurozone producer prices. Last week, German business sentiment rose to 11-year highs.
As the euro strengthens, we are upgrading the currency to bullish in the short-term. Looking at various technical indicators, the currency is looking overbought. 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.