The euro is mixed today - the common currency is slightly higher against the US dollar and the Canadian dollar, while selling off against the British pound and the Japanese yen. Last week, the euro strengthened thanks to expectations for future monetary tightening. While the ECB is expected to end its quantitative easing program later this year, ECB Governing Council member Nowotny's comments raised hopes for future rate hikes.
The euro remains supported thanks to hopes for tighter monetary policy, despite slowing growth and rising geopolitical risks. As we wrote in a commentary last week, bulls have only one reason to go long the currency today. Looking at speculator sentiment, traders continue to place big bets on the currency. The number of net long futures and options contracts in the euro are near a multi-year high. While excessive sentiment alone is not a reason to sell the euro, the currency looks increasingly precarious. Our view is that the bull market is running out of steam, and the currency is undergoing a topping process as a result. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.
EUR/USD is flat and trading above 1.2320. The euro is down against the yen, with EUR/JPY trading above 132.160. Finally, the euro is down slightly against the pound, with EUR/GBP above 0.8650.
Looking at this week’s economic data from the Eurozone, we’ll see sentiment data and final inflation figures for March. Tomorrow, we’ll get the ZEW Survey for economic sentiment in April (for both Germany and the Eurozone). On Wednesday, we’ll get the final reading for the Eurozone consumer price index for March. We’ll also see German wholesale prices for March. On Thursday, we’ll see the Eurozone current account balance for February. On Friday, we’ll see German producer prices for March and hear a speech from German Bundesbank President Weidmann. We’ll also see Eurozone consumer confidence for April. Last week, the second-take of YoY German consumer price index (1.6%) met expectations.
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.