The euro is fairly mixed this morning. While the common currency is slightly weaker against the US dollar and the pound, it is strengthening against the Japanese yen and commodity currencies such as the Australian dollar. Yesterday, the currency surged after Eurozone and German manufacturing PMIs indicated that the ongoing expansion was set to continue. As Eurozone exports are dominated by the German manufacturing sector, an expanding manufacturing industry is critical for the overall health of the region. As GDP growth is likely to stay elevated for the foreseeable future, traders are betting that the European Central Bank will end its asset buying program later this year. Looking at the latest German coalition headlines, the two sides are trying to meet a Sunday deadline. The SPD and CDU/CSU have now agreed on policies relating to education funding and daycare. Our short-term and medium-term outlook on the euro remains bullish.
EUR/USD is currently down slightly and trading above 1.2490. The euro is up against the yen, with EUR/JPY trading above 137.10. Finally, the euro is down slightly against the pound, with EUR/GBP above 0.8760.
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. Eurozone Markit manufacturing PMIs met expectations (59.6). Later today, 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.