The euro is mixed today - the common currency is falling against the US dollar and the Japanese yen, while strengthening against the British pound, the Australian dollar and the Canadian dollar. Yesterday, the euro fell despite a rebound in most equity markets. Today, the currency is a falling as markets fear an all-out trade war.
As we wrote in our US dollar daily update, Trump has threatened to impose additional tariffs targeting another $100b worth of Chinese trade. Trump has called the Chinese retaliation to the previous round of US tariffs "unfair". As the Eurozone's economy is heavily reliant on its external trade surplus (this is particularly true for Northern European countries such as Germany), the region is likely to be vulnerable in a trade war scenario. Beyond rising geopolitical risks, the Eurozone is also experiencing slowing economic growth. Yesterday, German factory orders and Eurozone retail sales both missed consensus expectations. Recent data suggests that the outlook for the economy is fairly poor. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.
EUR/USD is down and trading above 1.2220. The euro is down slightly against the yen, with EUR/JPY trading above 131.330. Finally, the euro is up slightly against the pound, with EUR/GBP above 0.8740.
Looking at economic data from the Eurozone, we’ll see figures relating to sentiment and inflation. German retail sales (1.3% vs. 2.2% expected) missed expectations by a wide margin. The final-take on Eurozone Markit manufacturing figures for March (56.6) met expectations. The Eurozone consumer price index for March (1.4%) and Eurozone unemployment for February (8.5%) met expectations. German factory orders for February (3.5% vs. 6.3% expected) missed expectations by a wide margin. Eurozone composite PMIs for March (55.2 vs. 55.3 expected) were slightly below estimates . Eurozone retail sales for February (1.8% vs. 2.1% expected) missed estimates while the producer price index for February (1.6% vs. 1.5% expected) was slightly ahead of estimates. German industrial production for February (2.6% vs. 4.3% expected) also missed estimates by a wide margin. Later today, we'll see Eurozone changes in employment (Q1). Last week, German inflation missed 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.