The euro is currently weakening against all major currencies. The common currency is the weakest against the Canadian dollar and the Australian dollar. Yesterday, both EUR/USD and EUR/GBP registered significant gains. The US dollar weakened following lower-than-expected core inflation while the British pound fell thanks to poor economic data and weak guidance for future rate hikes.
Turning to recent developments, the big news today is that an Italian anti-establishment government is looking more likely. As we wrote in yesterday's euro daily update, former Italian prime minister Silvio Berlusconi has approved a coalition between the 5-Star Movement and the League. While Italian equity and bond prices fell on the news, reactions in broader Eurozone financial markets have been more limited. As the Eurozone enters a broader downturn, developments from Italy are likely to have a greater impact on the common currency. Thanks to slugging Italian growth, the new government is likely to oppose the European Commission's spending limits. Thus, the issue of non-performing Italian debt is likely to return to the forefront of investor concerns. Our short-term and medium-term outlook on the euro is bearish.
EUR/USD is down slightly and trading above 1.190. The euro is down against the yen, with EUR/JPY trading above 130.20. Finally, the euro is down slightly against the pound, with EUR/GBP above 0.880.
This is a relatively light week for the Eurozone economic calendar. MoM German factory orders (-0.9% vs. 0.5% expected) missed expectations. YoY German industrial production figures for March (3.2% vs. 3.0% expected) and the German trade balance (€29.1b vs. €27.0b expected) were ahead of expectations. The European Central Bank’s economic bulletin suggested that growth remains steady while signaling the need for continued economic stimulus. Last week, Eurozone manufacturing PMIs were slightly ahead of expectations while inflation decelerated below expectations.
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.