Never miss a story from Christopher Vecchio

Subscribe to recieve updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to Christopher Vecchio

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Euro's Biggest Risk May Be Itself as Data Momentum Tanks

Fundamental Forecast for EUR/USD: Neutral

- The Euro trade-weighted index is up over +9% year-over-year, suggesting that the Euro itself may be the biggest reason for data starting to disappoint analyst expectations.

- The week ahead sees a lighter Eurozone economic calendar, meaning the news wire will dictate a good deal of price action.

- The IG Client Sentiment Index has recent flipped back to suggesting EUR/USD will rally.

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

The Euro dropped against most major currencies last week, barely posting gains against the Swiss Franc (EUR/CHF +0.18%) and the Japanese Yen (+0.26%). Growing trade tensions between China and the United States may be provoking volatility in global equity markets, but has yet to significantly impact the Euro as the European Union has been thus far unscathed.

But behind the salacious trade war headlines, the Euro is facing a difficult reality: it may be too big for its britches. The Euro trade-weighted index is up by +9.1% over the past year, and its ongoing strength may be filtering through into data.

The Citi Economic Surprise Index for the Eurozone, a gauge of economic data momentum, fell to -79.2 at the end of last week – the lowest level since April 2013, when the Eurozone was at the depths of the sovereign debt crisis.

Evidence that the Euro’s appreciation over the past year is weighing itself down in the near-term is evident in inflation expectations as well. The 5-year, 5-year inflation swap forwards, ECB President Mario Draghi’s preferred gauge of inflation, closed last week at 1.683% - well off of the 1.774% seen at the end of January. Recent inflation readings have been weak as well, with the headline in at +1.4% y/y, exactly where the ECB projects it finishing 2018.

Looking ahead, in a week with a light economic calendar due up, the news wire regarding trade tensions between China and the US, the US and its NAFTA partners, or the US and anyone else, will seem to be the focal point for market participants.

Considering how there is no true opportunity for an ‘off ramp’ for the Euro – a data release that could change the tenor of disappointment – it would thus reason that the Euro is still vulnerable for more downside. With net-long speculative positioning in the futures market still exceptionally elevated at 134.4K contracts, there is room for a further unwind.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- 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.