The euro fell sharply yesterday, following the European Central Bank meeting. The common currency initially rallied after the ECB's statement omitted a reference to an easing bias. Previous statements have suggested that the Bank may increase the scope of its asset buying program in the face of weak inflation. During the question and answer session, President Mario Draghi said that the missing statement must be taken in context, and does not signal a change in expectations. Shortly thereafter, the euro began weakening and continued to sell off for the rest of the day. Today, the euro appears to have stabilized and is flat against most major currencies except the yen. The Japanese yen is selling off after Trump suggested "great progress" relating to North Korea. Turning to economic data, the German trade balance was slightly better than expected, but German industrial production and factory orders both missed estimates. After a significant jump in 2017, growth appears to be cooling in 2018. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.
EUR/USD is flat and trading above 1.2310. The euro is up against the yen, with EUR/JPY trading above 131.30. Finally, the euro is up against the pound, with EUR/GBP above 0.8920.
Looking at economic data from the Eurozone this week, we'll see Q4 GDP figures and hear from the ECB at an upcoming monetary policy meeting. Eurozone Markit composite PMIs (57.1 vs. 57.5 expected) and Sentix investor confidence (24 vs. 31 expected) both missed expectations. YoY Eurozone retail sales (2.3% vs. 2.1% expected) were ahead of expectations. The second take of Q4 GDP (2.7%) met expectations. ECB President Mario Draghi disappointed traders looking for a more hawkish statement. MoM German industrial production (-0.1% vs. 0.5% expected) were below expectations while trade balances (€21.3b vs. €21.1b expected) were slightly ahead. Last week, Eurozone Markit manufacturing PMIs and headline inflation met consensus estimates.
As the euro runs out of steam, 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.