The euro ended the day slightly lower yesterday, and was weakest against the Japanese yen, the British pound and the US dollar. Today, the euro is mostly higher. The common currency has been selling off this week thanks to the ongoing stock market. As global risk appetite wanes, the euro is selling off as a result. The good news for the euro is that last night's losses were tame relative to the sell-off in the stock market. Once the risk appetite returns, the euro should resume strengthening. Turning to news, an economic bulletin released yesterday from the ECB stated that Eurozone growth is set to continue. Specifically: "The ongoing broad and solid economic expansion is expected to continue beyond the near term". The ECB also wrote that "downside risks continue to relate primarily to global factors, including developments in foreign exchange markets". While the ECB has acknowledged improving growth in the Eurozone, the strength of the euro has been a concern given its negative impact on inflation (a stronger euro lower Eurozone inflation rates). Our short-term and medium-term outlook on the euro remains bullish.
EUR/USD is currently flat and trading above 1.2260. The euro is up against the yen, with EUR/JPY trading above 133.540. Finally, the euro is down against the pound, with EUR/GBP above 0.8780.
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. German factory orders beat expectations by a very significant margin (7.2% vs. 3.1% expected). German industrial production figures were strong but missed expectations (6.5% vs. 6.8% expected). German trade balances (€21.4b) were slightly lower than expectations, but remain strong. 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 trading within normal conditions. Our analysis is based on various technical indicators when looking at a weekly chart.