Will the Euro Bulls Take a Breather This Week?


Jul. 10 2017, Updated 6:06 p.m. ET

Slowdown in the euro’s momentum

The EUR-USD (FXE) pair closed at a 0.21% fall against the US dollar (UUP) last week. Solid US jobs data on July 7, 2017, and weaker-than-expected economic data from the Eurozone limited the gains in the shared currency.

The Eurozone’s financial markets (VGK) have been dominated by comments from ECB (European Central Bank) officials who continue to plan exit strategies for the quantitative easing program. The proposed tapering of the current 60 billion euro purchases each month isn’t expected to begin until January 2018, but the markets are reacting upfront to this possibility.

Key members of the ECB remain noncommittal about tightening, and they seem to prefer to keep the option of extending the easing. The ECB removed the easing bias on rates in last month, but future steps could be dependent on the region’s economic performance.

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Euro bulls continue to surge, euro bonds remain under pressure

According to the latest Commitment of Traders (or COT) report, which was released on July 7 by the Chicago Futures Trading Commission (or CFTC), currency market speculators added 18,000 euro long contracts in the week as of July 4, the largest bullish position buildup in the last five weeks.

European bond (IGOV) yields, on the other hand, continued to rise, with the yield spreads between European nations widening further. The hawkish tone from ECB members with no major positives from the United States will likely push European currency (EUFX) and bond yields (BWX) higher.

Week ahead for the Eurozone

Economic data from the European Union consists of the German HICP (Harmonized Index of Consumer Prices), which will be released on July 11 and is expected to be reported at a rise of 1.5% year-over-year (or YoY). The French reading is expected to rise just 0.8% YoY, the Italian reading is expected to rise 1.2% YoY, and the Spanish reading is expected to rise 1.2% YoY.

These soft inflation numbers are likely to tame the bulls, while the bears could find encouragement in the Eurozone’s May production numbers, which are expected to have improved.


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