The euro is the common currency for the Eurozone, one of the world's largest regions in terms of GDP. The currency is fairly unique as it is shared by several countries with independent political and economic policies. The euro is the second-most traded currency in the world after the US dollar, according to a recent survey by the Bank for International Settlements. Specifically, the euro is involved in 19% of total foreign exchange trading.
The euro is currently steady against all major currencies. Yesterday, the euro rebounded against the US dollar after making four consecutive lower-lows earlier this week. After the euro moved into oversold territory, we have been calling for a short-term rebound. Today's EUR/USD trading range is 1.130 - 1.1530.
There are no significant fundamental developments related to the euro today. Similar to what we saw yesterday, euro trading is mostly a function of risk sentiment. As currency markets are mostly directionless today, the euro is also unchanged.
Turning to economic data, we'll see final inflation figures for the Eurozone later today. As the numbers are usually in line with the initial estimate, the data is unlikely to have a significant impact on the currency. In other news, Bundesbank Beermann's speech did not address monetary policy. Thanks to slowing growth and peaking inflation, the Eurozone's economy is likely to continue weakening. Our outlook on the euro remains bearish.
|August 14||Germany GDP Growth Rate YoY Flash Q2||2%||2.1%|
|August 14||Germany Harmonised Inflation Rate YoY Final JUL||2.1%||2.1%|
|August 14||Germany Inflation Rate YoY Final JUL||2%||2.1%|
|August 14||Eurozone GDP Growth Rate YoY 2nd Est Q2||2.2%||2.5%|
|August 14||Eurozone Industrial Production YoY JUN||2.5%||2.6%|
|August 14||Eurozone ZEW Economic Sentiment Index AUG||-11.1||-18.7|
|August 14||Germany ZEW Economic Sentiment Index AUG||-13.7||-24.7|
|August 15||Bundesbank Beermann Speech|
|August 16||Germany Wholesale Prices YoY JUL||3.5%||3.4%|
|August 16||Eurozone Balance of Trade JUN||€16.5B|
|August 17||Eurozone Current Account JUN||€4.6B|
|August 17||Eurozone Core Inflation Rate YoY Final JUL||0.9%|
|August 17||Eurozone Inflation Rate YoY Final JUL||2%|
Policy: Macron's victory in the French presidential elections catalyzed the ongoing euro rally. While the euro faced existential threats only a few years ago, few investors are doubting the unity of the Eurozone today. Looking at monetary policy, strong growth in the region is also increasing expectations for tighter monetary policy. After the European Central Bank recently reduced the scope of its asset buying program, markets are expecting the ECB to end the program entirely later this year. Looking at politics, upcoming Italian elections remain one of the key risks for the euro. If pro-European Union parties prevail in Italian elections, the common currency has room to strengthen further.
Sentiment: Looking at Commitments of Traders reports, most speculators were short the euro following its epic sell-off in 2014. Traders went net long immediately following Macron's victory and have maintained large net long positions since that time. Thanks to accelerating GDP growth in the Eurozone, sentiment has hit bullish extremes at times. While the euro is likely to pull back when sentiment becomes overly bullish, the longer term bull market looks set to continue.
Economic data: After experiencing a recession ending in 2013, the Eurozone has delivered stable growth since early 2014, helped substantially by a falling currency and a rising trade surplus. For now, growth remains strong and continues to support the currency. In early 2018, strong Eurozone manufacturing PMIs (a forward-looking indicator) pointed to continued strength in the underlying economy. On the other hand, Eurozone inflation remains subdued, despite the effect of rising oil prices. A stronger euro is likely to further weigh on inflation going forward. Overall, the impact from growth and inflation points to continued euro strength.
Earlier today, we downgraded our euro outlook to neutral in the medium-term, and bearish in the short-term. As the euro runs out of momentum, the trend is now neutral based on quantitative factors such as price, trading volumes and volatility. While forward-looking economic indicators continue to suggest an ongoing expansion, growth appears to be slowing in rate-of-change terms. This is why our p…
In our previous take on the euro in late February, we wrote that the bullish case for the currency was looking increasingly challenging. At the time, euro speculators were spooked by slowing forward-looking economic indicators, while upcoming political events in Italy and Germany risked the future unity of the region. While our outlook remains mildly bullish, this comes with the significant cavea…
Improving growth and falling political risk are pushing the Euro higher, but constant changes in the landscape put this movement at risk. Significant declining trends will impact the euro forecast - and speculators and traders should take note of the increased risk.