EUR/USD stabilizes near 3-y low
|On Friday, a promising calendar failed to overthrow reigning FX trading patterns. German/EMU Q4 growth were weak but EUR/USD stabilized in the mid 1.08 area. US retail sales and production were unconvincing. Michigan consumer confidence stayed strong. The dollar lost temporarily a few ticks, but EUR/USD still closed at 1.0831, the strongest since April 2017. The equity rally paused as markets pondered the balance between the economic fall-out of corona versus a favourable context of expected prolonged policy stimulus. USD/JPY held a tight sideways range in the upper part of the 109 big figure (close 109.78).
This morning, Asian/Chinese equity markets extended gains as the PBOC lowered the funding cost for medium-term loans and added liquidity to the market. Still the yuan gains marginal ground (USD/CNY 6.98 area). Japanese equities underperform and the yen weakens slightly after the country reported an unexpected sharp contraction in Q4 (-1.6% Q/Q) after the sales tax hike. USD/JPY is trading near 109.85. EUR/USD hovers in the 1.0835/40 area.
Trading will probably develop in rather thin market conditions today as US markets are closed for President’s Day. There are few eco data in EMU today. Later this week, we keep an eye at EMU confidence indicators, including German ZEW confidence (Tuesday) and the EMU PMIs Friday. Will uncertainty on corona put further pressure on the outlook for the EMU economy (and for the euro)?
The EUR/USD technical picture deteriorated substantially after breaking subsequent supports, including the 1.0879 2019 low. 1.0778 is the next reference (2017 gap). The pair is moving into oversold territory, but this factor alone is unlikely to trigger a rebound. A rise above the 1.0900 area would be a first tentative sign that pressure might be easing.
On Friday, EUR/GBP stabilized north of 0.83. Sterling maintained most of the gains against a weak euro for earlier last week. Investors hope that fiscal stimulus will support UK growth. This morning, UK house prices (Rightmove) were solid (0.8% M/M). Later this week, we receive an in extenso update on the UK economy with labour data, CPI, retail sales and confidence data. A rebound in activity/confidence after the election might support the sterling bid, despit the noise on the EU-UK trade talks.
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