The euro largely took its cues from the US data last week which was less than impressive, especially in the retail sector. Some slightly weaker EU data has led to calls for further stimulus from the ECB and that has limited the Euro's gains. The central bank is set to meet this week to set interest rates and could possibly hint at further stimulus to come.
The euro gained solidly in the first half of the week thanks to market sentiment swinging away from the US dollar. A fall in US core retail sales by -0.3% m/m has seen a shift in interest rate expectation, with many believing the Fed will not be able to justify a rate rise this year.
Data out of the EU was lacklustre with German ZEW economic sentiment falling from 12.1 to 1.9. Euro CPI also remained on the wrong side of 0 at -0.1% y/y which will be worrying for the ECB. There have been increased calls for more QE from the ECB which caused the Euro to give up the gains in the latter half of the week.
The ECB are set to meet this week to discuss monetary policy, but there is no real expectation of a change. If Draghi is to widen QE this year, he will likely signal well in advance. Certainly this meeting could hold some clues. Draghi has said right from the start that they were prepared to expand QE at any stage if the economy required it. Also keep an eye on the French and German Manufacturing PMI results later in the week as they will give an idea of how that side of the economy is shaping up. So far they have remained relatively solid and are both expected to return expansionary results.
Technicals show the euro continuing the overall bullish bias against the US dollar. The 20 and 100 day MAs are trending higher with the Stoch dipping out of overbought territory providing further upside room. Watch for support at 1.1337, 1.1255 and 1.1180 with the trend line acting as dynamic support. Resistance is found at 1.1388, 1.1439 and 1.1495.