The euro is mostly flat today, after weakening for two days. The currency has been especially weak against safe havens such as the US dollar, the Japanese yen and the Swiss franc. The recent driver of the euro's weakness has been the global stock market sell-off. Last Friday, stocks began weakening after bond yields rose sharply. Yesterday, the stock markets rout deepened as stocks sold off very sharply. As the euro tends to depreciate during global downturns, the euro weakened as a result. While economic data announced yesterday (including PMIs and sentiment figures) were fairly strong, this had a limited impact on the common currency. Looking at German coalition news, talks have been extended until today according to Reuters. Issues including healthcare remain outstanding for the two sides. Our short-term and medium-term outlook on the euro remains bullish.
EUR/USD is currently flat and trading above 1.2380. The euro is flat against the yen, with EUR/JPY trading above 134.890. Finally, the euro is flat against the pound, with EUR/GBP above 0.8850.
Looking at economic data from the Eurozone this week, we’ll see PMI surveys as well as data from the German manufacturing and export sector. Eurozone Markit services (57.3) and composite PMIs (59) were ahead of expectations. Retail sales (1.9%) were ahead of expectations while the sentix investor confidence (31.9 vs. 33 expected) was slightly below estimates. Later today, we’ll see German factory orders. On Wednesday, we’ll see German industrial production. There is also a non-monetary policy-related ECB meeting scheduled for that day. On Thursday, we’ll see German trade balances. Last week, Eurozone Markit manufacturing PMIs signaled strong future growth.
As the euro strengthens, we are upgrading the currency to bullish in the short-term. Looking at various technical indicators, the currency is trading within normal conditions. 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.