Not a good look for the euro as dour sentiment makes its way into the data

The euro's shine at the end of last year is starting to look more dull now

The miss on the Sentix investor sentiment earlier may be but one data point but it is starting to reflect weaker conditions overall in the euro area to start the new year. Let's take a trip back to the euro play-by-play at the start of last week:

In the run up to the new year, the deterioration in the dollar set the euro up for a solid start alongside some key fundamentals - which have since turned around. Let's review:1. Virus situation in Europe was worsening but expected to be over and done with by early Q1. That narrative has now shifted with restrictions set to be prolonged, such as seen in Germany - which could carry on to Easter potentially.2. Europe looks set to progress well on the vaccine front. That narrative has since been dented after running into delays on the rollout and the recent dispute with AstraZeneca.3. ECB didn't appear too bothered about euro strength in December. That narrative has changed a little now with policymakers jawboning the currency at every opportunity, although verbal intervention may be as far as they will go for now.

The latest data miss underscores points #1 and #2 and we'll only get more of a taste of softer economic activity in Q1 as a double-dip recession looks likely.

So, what's next for the euro considering all this?

The bright spot for the euro is that the market continues to be more forward-looking in general, that is keeping the focus on vaccine optimism.

The hope is that the timeline in which lawmakers in the region are targeting i.e. more normal conditions some time by the summer this year, is able to be met and that lockdown measures will not impact Q2 economic activity all too much.

However, if either or both of those start to falter, it may be tough for the euro currency to outperform moving forward - especially when the dollar doesn't look to be capitulating as many were anticipating at the end of last year.

For today, the technical bounce in EUR/USD at the end of last week is somewhat helping. However, when looking at overall performance, only the franc and yen are performing worse than the single currency after the opening five weeks of the year.