The euro is mostly lower today. The common currency is the weakest against the Japanese yen and the US dollar. Last Friday, final inflation figures for February were revised lower (1.1% vs. 1.2% expected). As Eurozone inflation weakens, the probability of the ECB tightening its monetary policies is falling. Earlier in the year, the euro strengthened after the Bank suggested it may communicate the end of its asset buying program later this year. As this has yet to occur, monetary policy expectations (alongside the euro) are lower as a result.
The euro is also selling off thanks to recent dollar strength. The US dollar is strengthening as a result of weak risk sentiment following an escalation of political risks in Japan and the rising threat of a global trade war. As risk sentiment worsens, safe havens including the yen and the dollar are rallying while "risk on" currencies such as the euro are weakening in relative terms. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.
EUR/USD is down and trading above 1.2260. The euro is down against the yen, with EUR/JPY trading above 129.720. Finally, the euro is down slightly against the pound, with EUR/GBP above 0.880.
Looking at economic data from the Eurozone this week, this is a critical week for sentiment data. On Tuesday, we’ll see the March ZEW economic sentiment survey for both Germany and the Eurozone. On Wednesday, a non-monetary policy ECB meeting will be held. On Thursday, the most important day, a transition deal may be announced during the European Council Meeting. We’ll also see March Markit services, manufacturing and composite PMIs for Germany and the Eurozone. We’ll also get IFO expectations from Germany. Consensus estimates are calling for weakening sentiment. On Friday, the European Council meeting will continue. Last week, the Eurozone consumer price index for February fell to 1.1% (from initial figures of 1.2%).
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.