The euro is mixed today. The common currency is selling off against the US dollar and the British pound, while making gains versus the the Australian dollar and the Japanese yen. Yesterday, the euro strengthened against the US dollar following significant weakness. Today, the currency has resumed weakening as the spread between US and Eurozone bond yields trades near all-time highs.
Turning to recent news and events, German IFO expectations were significantly below estimates and slowed from previous monthly figures. As Eurozone sentiment data weakens, the outlook for growth this year is worsening as a result. In a previous commentary on the euro, we wrote that decelerating economic growth will ultimately force the ECB into more accommodative monetary policy. Yesterday, we published a preview of the upcoming ECB meeting (scheduled for tomorrow). We argue that the Bank is unlikely to communicate any change in forward guidance (or hint at ending its asset buying program later this year). Instead, we argue that Draghi will buy more time to see if growth continues to decelerate this year. Our short-term outlook on the euro is bearish, while our medium-term outlook is neutral.
EUR/USD is down slightly and trading above 1.2210. The euro is up slightly against the yen, with EUR/JPY trading above 133.20. Finally, the euro is down against the pound, with EUR/GBP above 0.8740.
Looking at this week’s economic events from the Eurozone, the most important event includes an upcoming ECB interest rate decision. Eurozone manufacturing PMIs for April (56 vs 56.1) were below expectations. Services (55 vs. 54.6 expected) and composite (55.2 vs. 54.9 expected) PMIs were ahead of expectations. German IFO expectations for April (98.7 vs. 99.5 expected) were significantly below estimates. Tomorrow, the most important day, we’ll see the ECB’s latest interest rate decision and hear from ECB President Draghi. We’ll also see May GfK consumer confidence from Germany. On Friday, we’ll get German unemployment figures. We’ll also see a range of sentiment data from the Eurozone for April (services sentiment, economic sentiment, business climate, industrial confidence and consumer confidence). Last week, the ZEW sentiment survey for April was below estimates.
As the euro runs out of steam, we are now bearish on the currency 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 trades sideways, we are now neutral on the currency 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.