The Euro is losing steam and is failing to react to stronger economic data or hawkish ECB comments.
This suggests that at least in the near term, the Euro is becoming overbought and in order for fresh gains to be achieved, we need to either see a big downward surprise in US data or a big upward surprise in European data. Unfortunately we will probably not get either of this tomorrow with the Eurozone trade and current account balances being the only pieces of Eurozone data on the calendar. Consumer prices were right in line with expectations; the 2.6 percent annualized pace of growth explains why the ECB remains extremely hawkish and refuses to talk down the Euro. Even the French are now convinced that the region needs a stronger currency. The Bank of France said this morning that inflation vigilance is warranted and the recent rise in the euro is helping to limit the rise in certain prices. According to the ECB monthly report, the central bank “stands ready to counter upside risks to price stability as required by our mandate.” We can’t imagine more hawkish comments than these. However the Euro has not strengthened and we think that this may be partially due to EURJPY selling. Meanwhile Switzerland will be reporting retail sales tomorrow. A tight labor market should lead to stronger spending.