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Why the Euro Failed to Rally in the Week Ended March 23

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Mar. 28 2018, Published 8:09 a.m. ET

Euro hit by weak economic data

The euro–dollar (FXE) exchange rate closed the week ended March 23 at 1.2353, depreciating by 0.52% against the US dollar (UUP). The European currency failed to capitalize on the weaker dollar as economic data reported from the Eurozone failed to meet expectations. 

The ZEW economic sentiment reports and the manufacturing PMI (purchasing managers’ index) reports have been reported below expectations. As a result, the euro lost out to other currencies in capturing the US dollar’s losses.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), closed lower in the previous week. The German DAX (DAX) ended the week ~4.1% lower, the Euro Stoxx (FEZ) fell ~4.1%, and France’s CAC gained ~3.6% for the week ended March 23.

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Euro speculative bets increased from the previous week

According to the March 23 Commitment of Traders (or COT) report, speculator positions on the euro decreased by 13,680 contracts last week. The total net speculative bullish positions on the euro (EUFX) decreased from 146,380 contracts to 132,700 contracts on March 20.

Outlook for the euro

This week, the euro’s price action could be impacted by the US dollar and the tensions surrounding potential trade wars. The economic data scheduled to be reported this week include Germany’s consumer climate and unemployment changes. 

These metrics aren’t likely to have any major impact on the euro, leaving the US dollar demand in the forex markets as the key source for the euro’s price action this week. 

In the next part of this series, we’ll analyze the performance of the British pound after last week’s hawkish statement from the Bank of England.

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