The euro is mostly flat today. The common currency is flat against all major currencies except the Australian dollar and the Canadian dollar. Yesterday, the euro fell sharply against the US dollar. Given fears of relatively slow growth in the Eurozone, traders have been selling European currencies while buying the dollar.
Today is a significant day for the euro as we'll see both forward-looking Markit manufacturing PMIs and Q1 GDP growth. Yesterday, manufacturing sentiment figures from the UK were below estimates, and this led to the pound weakening significantly. Given jitters regarding European growth this year, today's PMIs will be watched closely. The current average estimate for Eurozone manufacturing PMI (56) is relatively high. Q1 GDP growth will also be watched closely, as traders compare US versus Eurozone growth. The consensus estimate expects YoY GDP growth to slow to 2.5% (from 2.7% in the previous quarter) as underlying components such as retail sales and business investment decelerate relative to last year. As we explained in a recent commentary, the US dollar tends to strengthen when US growth is relatively higher. In relative terms, the euro weakens when the US dollar strengthens. While EUR/USD is currently looking oversold, the pair can continue weakening if today's data is significantly below expectations. Our short-term and medium-term outlook on the euro is bearish.
EUR/USD is flat and trading above 1.190. The euro is flat against the yen, with EUR/JPY trading above 131.70. Finally, the euro is up slightly against the pound, with EUR/GBP above 0.8820.
Looking at this week’s economic events from the Eurozone, the most important data releases include manufacturing sentiment and inflation figures. MoM German retail sales for March (-0.6% vs. 0.8% expected) and the German harmonized index of consumer prices for April (1.4% vs. 1.5% expected) missed expectations. Later today, we’ll see Eurozone Markit manufacturing PMIs for April, as well as Eurozone Q1 GDP growth. We’ll also hear a speech from the German Bundesbank’s Weidmann. On Thursday, we’ll see the Eurozone consumer price index for April and producer prices for March. We’ll also hear speeches from the ECB’s Constancio and Cœuré. On Friday, we’ll see Markit services and composite PMIs for April. We’ll also see Eurozone retail sales for March and hear another speech from the German Bundesbank’s Weidmann. Last week, the ECB failed to meet expectations regarding future monetary tightening.
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 weakens, we are now bearish 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.