The euro is mostly higher today. The common currency is higher against the yen, the Australian dollar and the US dollar while selling off against the British pound. Yesterday, the euro rallied after Reuters reported that the ECB is "broadly comfortable" with the market anticipating rate hikes in Q1 2019. Following weak Eurozone inflation figures for February (1.1%), expectations for the ECB to end its asset buying program had been falling. The latest news headlines suggest that the Bank is looking to raise expectations for monetary policy tightening.
Turning to other economic data, the Eurozone trade surplus was lower than expected. While the news had a limited impact on the currency, a falling trade surplus is a longer term negative for the euro. In other trade news, the US has offered relief from Eurozone steel and aluminum tariff exports in exchange for cooperating with the US against China's trade-distorting policies. According to a Bloomberg story, the U.S. Trade Representative's Office has laid out similar conditions for other countries. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.
EUR/USD is down and trading above 1.2340. The euro is up against the yen, with EUR/JPY trading above 131.090. Finally, the euro is down against the pound, with EUR/GBP above 0.8770.
Looking at economic data from the Eurozone this week, this is a critical week for sentiment data. Later today, 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.