The euro is mixed today. The common currency is strengthening against the British pound, while selling off against the Australian dollar and the Japanese yen. Yesterday, the euro moved down sharply without any obvious catalysts. The most likely cause of the move was the resurgence of the US dollar, which moved up against all major currencies. In general, the euro rally has been running out of steam as forward-looking indicators are pointing to a deceleration of Eurozone growth while ECB officials are growing concerned regarding weak inflation.
Later today, we'll see inflation data from Germany. While the consensus is forecasting an acceleration in inflation, this is difficult to see as most commodities have been flat in 2018 (changes in commodity prices are a good front-runner for inflation). Given the recent strength of the euro, most commodities (priced in euro) have not appreciated in 2018. Looking at German government bonds, falling yields suggest that the market is poised for inflation to keep decelerating. If inflation figures miss expectations, expect the euro to fall accordingly. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.
EUR/USD is flat and trading above 1.230. The euro is down against the yen, with EUR/JPY trading above 131.10. Finally, the euro is up against the pound, with EUR/GBP above 0.8750.
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. Today 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 1.7%. 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.