News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • $USD still holding support in the 93.43-93.73 zone shorter-term, not yet able to pose any meaningful continuation moves, still lower-lows, highs next r level, 94.17 next s level, 93.52 #DXY https://t.co/d5DtqK4xUc https://t.co/ZRCho2lSOi
  • 🇨🇦 Core Inflation Rate YoY (SEP) Actual: 3.7% Previous: 3.5% https://www.dailyfx.com/economic-calendar#2021-10-20
  • 🇨🇦 Inflation Rate MoM (SEP) Actual: 0.2% Expected: 0.1% Previous: 0.2% https://www.dailyfx.com/economic-calendar#2021-10-20
  • 🇨🇦 Inflation Rate YoY (SEP) Actual: 4.4% Expected: 4.3% Previous: 4.1% https://www.dailyfx.com/economic-calendar#2021-10-20
  • Join @CVecchioFX at 9:30 EST/13:30 GMT for your mid-week market update webinar. Register here: https://t.co/daghpCQ68Y https://t.co/uYC56N17Cq
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 91.80%, while traders in GBP/JPY are at opposite extremes with 74.91%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/rMdHguFejf
  • finally getting some pullback in these Yen trends $AUDJPY tagged the 85.81 level, support potential around 85 prior resistance, then another around 84.25. let's see what this Yen theme is made of https://t.co/QVf7SHffCW https://t.co/RZzrs86xp6
  • Forex Update: As of 12:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.20% 🇨🇦CAD: 0.17% 🇦🇺AUD: 0.16% 🇪🇺EUR: -0.08% 🇨🇭CHF: -0.10% 🇬🇧GBP: -0.28% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/cNnkSEOOMU
  • Heads Up:🇨🇦 Inflation Rate MoM (SEP) due at 12:30 GMT (15min) Expected: 0.1% Previous: 0.2% https://www.dailyfx.com/economic-calendar#2021-10-20
  • Heads Up:🇨🇦 Inflation Rate YoY (SEP) due at 12:30 GMT (15min) Expected: 4.3% Previous: 4.1% https://www.dailyfx.com/economic-calendar#2021-10-20
Euro Faces Test with CPI Due as Economic Data Momentum Drops

Euro Faces Test with CPI Due as Economic Data Momentum Drops

Christopher Vecchio, CFA, Senior Strategist
Euro Faces Test with CPI Due as Economic Data Momentum Drops

Fundamental Forecast for EUR/USD: Neutral

- Market participants may have gotten ahead of themselves with respect to their high expectations for Euro-zone growth in early-2018, as the Citi Economic Surprise Index has turned negative.

- Incoming inflation data for February could prove to be the defining moment for the Euro this month.

- The IG Client Sentiment Index has cooled on EUR/USD in the near-term, although the retail crowd remains net-short.

See our long-term forecasts for the Euro and other major currencies with the DailyFX Trading Guides.

The Euro had a tough week as the calendar turned through mid-February, dropping against all but two of the major currencies. EUR/USD was the worst performing EUR-cross, dropping by -0.90%, followed by EUR/GBP, which fell by -0.51%. While no one single data release could be pointed to as the reason for broad Euro weakness, there has been a noticeable slide in how data has performed relative to expectations in general.

Indeed, it seems market participants’ expectations for Euro-zone economic strength got ahead of themselves, leaving the Euro in a situation where it may have likewise gotten too big for its britches. The Citi Economic Surprise Index, which was at +56.4 four weeks ago, entered last week at +35.7, and crashed down to -4.1 by Friday – the lowest reading since September 2016.

To an extent, the reason why data momentum may be cooling may be due to the Euro itself. The European Central Bank sees EUR/USD finishing 2018 at 1.1700, and at its current exchange rate, it’s more than 5% above the central bank’s forecast. Year-over-year, the Euro trade-weighted exchange rate is up by +9.7%, a veritable headwind for inflation.

Given that the ECB has made clear it wants to see inflation back near its +2% target on a sustainable basis before it sincerely exits all of its extraordinary, any signs that inflation is struggling could undercut speculation around the ECB removing its stimulus; a reaction that could sink the Euro.

Accordingly, as market participants are being forced to reconsider their bullish Euro bets, there is no data release in the current week – and perhaps, thus far year-to-date – than the preliminary February CPI report. Due in at +1.2% on the headline, this would be a small decline from the prior +1.3% reading in January (y/y). The core reading is due in unchanged at +1.0% (y/y). Neither points to an outcome where traders should be eager to rekindle speculation over a hawkish ECB policy turn.

Traders will need to stay cautious about the saturated state of the futures market, given that speculators are still holding a significantly large net-long Euro position. For the week ended February 20, speculators held +126.1K net-long contracts; barely a drop from the +127.3K held the week prior. Last week we said that “it will take a great deal of negativity – a change in tone by the ECB, a substantial turn in economic data – for traders to give up on their Euro bullishness.” If the preliminary February CPI report flounders, we may have arrived at the moment where Euro bulls capitulate.

See our long-term forecasts for the Euro and other major currencies with the DailyFX Trading Guides.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX.

To receive this analyst’s reports, sign up for his distribution list.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES