By: William Doody
The Euro has benefited in recent weeks from signs of a gradual recovery in major Eurozone economies, most notably Germany, where Tuesday’s ZEW economic sentiment survey was dramatically better than analysts had expected. The rise in equity markets has also helped, as traders have moved out of safe-haven currencies such as the Dollar and Yen and have taken positions in the Euro.
Traders have two more important releases to contend with this week. First, on Wednesday, Germany producer price data will be released. Analysts are forecasting a flat result compared to the previous month and a substantial decline over the last year. The Euro would most likely benefit more from a higher-than-expected PPI level than from a downside surprise. The former scenario is possible, as commodity prices have moved significantly higher over the last few months. Meanwhile, on Friday, Eurozone manufacturing data will be released. For the Euro to maintain its positive momentum over the longer-term, these surveys will need to show a substantial uptick in industrial manufacturing. We have noted several times over the last few weeks that we are skeptical concerning the recent strength of the Euro. While it has maintained its strength until now, we view it as prudent to take profits and to not move too aggressively on the long side.
Trading recommendations: Take profits on long positions