First sight of dollar weakness could lead to euro rally next week

20th March 2015 By: Ranko Berich

Euro Outlook – 20/03/15

After what appears to be the first sight of dollar weakness since February, this week’s data releases have the potential to create a surprise rally in the euro.

Over recent weeks strong US data and political concerns in the eurozone, coupled with loose ECB monetary policy, have driven euro/dollar down at an incredible rate. However, a few of the latest US data releases have fallen short of high market predictions, with euro data taking an unexpected upturn.

Flash PMI figures for the eurozone on Tuesday as well as German IFO Business Climate on Wednesday will be the key releases for the euro, revealing just how far optimism is picking up in the wake of the ECB’s QE programme. M3 money supply data on Thursday could be another bright spot if it indicates further evidence of lending improvements.

Despite a potential change in short-term fortunes, political tension will continue to hang over the euro. Little progress has been made in reaching a deal between Greece and its eurogroup creditors and, although the situation appears to have stabilised, the Greek Syriza government has yet to play the only negotiating card they really have – threatening to leave the euro. Should negotiations deteriorate to the point where Syriza has no choice but to play this card, the currency would be set to take another big fall.