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Medium-tier data from the euro zone came in mostly stronger than expected, but doubts about the German coalition and ECB tightening came into play. Will the ECB minutes set the record straight?

Flash PMI dump (Feb. 21)

It’s the third week of the month, which means it’s time for the euro zone flash PMI data dump! The region’s top economies, namely Germany and France, are ready to print estimates for the current month’s business indicators.

Small dips in flash manufacturing and services PMI readings are eyed for both nations, which would reflect a slight slowdown in industry growth. This should bring the euro region’s flash manufacturing PMI down from 59.6 to 59.4 and the services PMI down from 58.0 to 57.7.

Keep in mind, however, that the shared currency doesn’t usually have a strong and sustained reaction to these reports unless all or most of the figures come in drastically stronger or weaker than expected.

ECB monetary policy meeting accounts (Feb. 22, 12:30 pm GMT)

Euro traders would likely hold out for the release of the ECB meeting minutes, which might contain more clues on when the central bank plans on ending its asset purchase program or starting to hike rates.

Most market participants appear to be anticipating the first ECB hike in September, although some predict that it could take longer if the currency’s appreciation starts hurting inflation prospects.

With that, any remarks attempting to curb euro strength could keep a lid on the currency’s gains while more focus on consistent economic improvements could allow the rallies to resume.

Last Week’s Price Review

The Euro

The euro edged out the Swissy to claim the title of third best-performing currency of the week (as of 2 pm GMT). Like the Kiwi that’s currently in second place, however, the euro’s wins were rather small, except against the Greenback and the Loonie.

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

Also, like the Kiwi, most euro pairs were trading roughly sideways this past week. Unlike the Kiwi, however, price action on the euro was rather messy, with signs of divergence to boot, which implies that the euro was vulnerable to opposing currency price action.

The euro’s lack of strong directional movement and vulnerability to opposing currency price action this week was likely due to the lack of major catalysts since only low-tier and mid-tier economic reports were released this past week.

Also, the political uncertainty in Germany won’t be fully resolved until SPD members vote on the coalition deal from February 20 to March 2, with a decision expected by March 4.

With that said, there were short bouts of uniform movement, so the euro wasn’t a complete victim to its peers.

This can be seen when the euro broadly rose during Tuesday’s morning London session. But as noted in Tuesday’s London session recap, there weren’t really any apparent catalysts for the euro’s rise. Although I also mentioned that some market analysts were saying that the  euro was probably benefiting from capital flows due to the falling Greenback.

Another example of roughly uniform price action is when the euro retreated on Friday. ECB Executive Board Member Benoît Coeuré’s statement that “policy rates won’t be hiked before the end of the asset purchases” clearly had a negative impact on the euro on Friday. But as noted in Friday’s London session recap, the euro’s broad-based slide began earlier. No clear catalyst for that, though.

The Swiss Franc

Overlay of CHF Pairs: 1-Hour Forex Chart
Overlay of CHF Pairs: 1-Hour Forex Chart

As mentioned earlier, the euro barely edged out a win against the Swissy. So if you guessed that the euro and the Swissy are still dancing in tandem, then you’re right.

The Swissy was noticeably more vulnerable to the returning risk-on vibes after the U.S. CPI report was released on  Wednesday, though.

Also, the Swissy picked up the pace and broadly rallied on Thursday, even though risk appetite prevailed. However, there was no clear reason for that. And most market analysts didn’t even bother to address the Swissy’s strength. Bond yields were down on Thursday, though, so it’s possible that there was some risk aversion that propped up the safe-haven Swissy.

AUD/CHF (inverted, red) vs.  EUR/AUD (black): 1-Hour Forex Chart
AUD/CHF (inverted, red) vs.  EUR/AUD (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart