The euro is mostly lower today following disappointing data from the Eurozone and a broad rebound in the US dollar. The common currency is the weakest against the British pound, the Australian dollar and the US dollar. Yesterday, the euro began selling off following weak Eurozone sentiment data and dovish comments from Erkki Liikanen, a member of the ECB's Governing Council. As both monetary policy expectations and future growth are weakening, the euro rally has stalled as a result.
Turning to political news, two senior members of Italy's 5-Star party are pushing for a coalition deal with the League (their right-wing rivals). The lawmakers told Reuters that a deal with the League was the only realistic option today. The 5-Star movement is fiercely opposed to any coalition agreement with Forza Italia (center-right parties led by Berlusconi). The League is looking to push its own candidate to be the future prime minister of Italy. 5-Star won 33% of the popular vote, with the League winning 17% of the vote. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.
EUR/USD is down and trading above 1.2390. The euro is up slightly against the yen, with EUR/JPY trading above 130.80. Finally, the euro is down against the pound, with EUR/GBP above 0.8740.
Looking at economic data from the Eurozone this week, we'll see German inflation towards the end of the week. German Bundesbank President Weidmann said that market rate hike expectations were "not completely unrealistic". German import prices (-0.6% vs. -0.3% were worse than expected). Eurozone sentiment data including economic sentiment (112.6), industrial confidence (6.4) and services sentiment (16.3) all missed expectations. Only consumer confidence (0.1) met expectations. German GfK consumer confidence (10.9 vs. 10.7 expected) beat expectations. Tomorrow is the most important day, and we'll see the March consumer price index and the harmonized consumer price index for Germany. The consensus forecast is for YoY inflation to accelerate to 1.5%. Last week, ZEW, IFO and PMI sentiment figures indicated worsening sentiment.
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.