The euro is mostly higher today. The common currency is currently strengthening against all major currencies except the Australian dollar. Yesterday, the currency weakened, particularly against the US dollar, Canadian dollar and the British pound. As US interest rates rise while traders question the ECB's resolve to tighten monetary policy, the euro is becoming relatively less attractive as an investment destination.
Turning to recent news and events, the most important event today is the upcoming ECB meeting. As we wrote in our preview of the event, the consensus expects Draghi to provide unchanged forward guidance while hinting at an announcement regarding the end of the bond buying program. The most important language to look for includes commentary regarding the asset buying program, inflation and risks. While investors remain optimistic that the ECB will imminently adjust its monetary policies, we have argued that the Bank will struggle to go beyond beyond ending its asset buying program as Eurozone growth decelerates. The odds for a 2019 rate hike are currently around 50%, and this is currently priced into the euro. Our short-term outlook on the euro is bearish, while our medium-term outlook is neutral.
EUR/USD is up slightly and trading above 1.2170. The euro is up slightly against the yen, with EUR/JPY trading above 133.0. Finally, the euro is up slightly against the pound, with EUR/GBP above 0.8730.
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. Later today, 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.