Weakening data could spell trouble for the Euro. The Euro had a stellar start to 2018 climbing against a host of currencies including the dollar. On January 1 EUR/USD was trading at 1.200 before climbing to a high of 1.246 on Jan 31.
This was on the back of strong economic data that caused traders to speculate that the European Central Bank would end its bond-buying program early. But February saw prices pull back as institutional traders looked to lock in profits. This caused the price to drop a few points to trade at around the 1.230 mark at the end of February.
Profit Taking
The profit taking was put down to a weakening of economic data from the eurozone, with the Citi Economic Surprise Index, which shows how real data is performing against projections, falling from a high of +54.6 at the beginning of February to a low of -4.1 by the end of the month. That’s the lowest figure since September 2016.
But profit-taking may not be the only reason the euro’s momentum has slowed. At its current price the single currency is trading approximately 5% above the European Central Banks (ECB) forecast, which is a sign that inflation is struggling.
With the ECB stating that it wants to see inflation back to its +2% target before it ends its stimulus package, this could spell trouble for the euro as this year’s bullish sentiment so far is based on the fact that bond buying may end early.
EURUSD Live Chart
Future Data
Traders, therefore, need to keep a cautionary eye on upcoming economic data from the eurozone to decide whether the euro will continue to strengthen or pull back.
February’s Consumer Price index (CPI) didn’t provide any clues, coming in on target up 1.3%, a miss would have indicated bearish sentiment for the euro. So traders will have to analyse the Eurozone flash inflation data released on Wednesday February 28, for further clues.
The ECB also released minutes of the policy meeting on March 8. The minutes of this meeting provide further information about whether the ECB intends to extend its monetary policy program or cut back on bond buying. Some comments can be interpreted either way, leaving traders to speculate.