The euro is strengthening today, despite higher-than-expected US inflation figures. While the euro initially sold off after the data was released, the common currency is now strengthening. As we described in our US dollar daily update, the outlook for inflation remains weak thanks to falling commodity prices and base effects. Earlier today, economic data from the Eurozone continued to suggest strong growth. Industrial production figures were ahead of forecasts, while GDP growth met consensus estimates. Looking at German data, the harmonized index of consumer prices met expectations, while year-over-year GDP growth was slightly ahead of expectations. In general, economic data from the region remains positive and has been supportive for a stronger euro. While the euro's strength has resulted in fairly weak inflation across the Eurozone, monetary policy expectations continue to rise. Ultimately, the European Central Bank is running out of excuses to maintain its monetary easing program. Looking at German coalition news, the SPD's interim leader is calling on the party's delegates to vote for the coalition agreement for the sake of Europe. “The window of opportunity is now, not in five or 10 years - maybe then it won’t be there any more,” he said. Our short-term outlook on the euro is neutral, while our medium-term outlook remains bullish.
EUR/USD is currently up and trading above 1.2390. The euro is down against the yen, with EUR/JPY trading above 132.520. Finally, the euro is flat against the pound, with EUR/GBP above 0.8880.
Looking at Eurozone economic data this week, we’ll see German consumer prices as well as Eurozone GDP growth and industrial production. The German harmonized index of consumer prices met expectations (1.4%). German (2.3% vs. 2.2% expected) and Eurozone (2.7%) Q4 GDP growth mostly met expectations. Eurozone industrial production was ahead of expectations (5.2% vs. 4.2% expected). On Friday, we’ll see German wholesale price index figures. Last week, Eurozone composite PMIs were ahead of expectations, signaling strong future growth.
As the euro pulls back, we are downgrading the currency to neutral 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.