The euro is up today (particularly against the US dollar), and has strengthened every day this past week. Looking at EUR/USD, the pair is now trading above the critical 1.25 level this morning. In general, the euro continues to benefit from good economic data and monetary policy tightening expectations. Yesterday, seasonally adjusted Eurozone trade balances were higher than expectations. All else held equal, higher net exports tends to strengthen the euro. Turning to politics, Reuters is reporting that two thirds of SPD supporters back another German grand coalition according to a recent poll. 78% of conservatives also back another coalition. This is good news for Angela Merkel, especially as she has been heavily criticized for making too many concessions to the SPD. Looking at Italian elections, markets remain fairly complacent regarding the risk of a Euroskeptic party coming to power. The leading "5 Star Movement" has hinted that leaving the euro is unrealistic. Looking at election predictions, center-right parties affiliated with Silvio Berlusconi are currently leading the polls, but are unlikely to gain enough votes to form a majority government. We will upgrade our short-term outlook to bullish later today. Our medium-term outlook on the euro remains bullish.
EUR/USD is currently up and trading above 1.2530. The euro is flat against the yen, with EUR/JPY trading above 132.660. Finally, the euro is flat against the pound, with EUR/GBP above 0.8870.
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). Later today, we’ll see German wholesale price index figures. Last week, Eurozone composite PMIs were ahead of expectations, signaling strong future growth.
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.