ZEW to cause more pain for the euro ?

KBC Market Research Desk KBC Bank

On Monday, global (FX) markets experienced a lacklustre session. US markets were closed and there were no key EMU data. China (and the yuan) initially held a constructive bias as the PBOC provided cheap money and the government prepared (selective) fiscal support to ease the impact of corona. However, the positive spill-over to Europe and the rest of the world was modest. EUR/USD held a tight sideways range near recent lows and closed at 1.0836. USD/JPY kept a cautious intraday uptrend but again failed to regain the 110 barrier. (close 109.88).

This morning, the market assessment on corona turned again ‘negative’ after Apple indicated it doesn’t expect to meet its revenue guidance as production and demand of iPhones are negatively impacted by corona. The yuan weakens close to USD/CNY 7.00. The yen strengthens slightly (USD/JPY 109.75 area). EUR/USD again tested the 1.0825 area, but for now a new down-leg is avoided. The Aussie dollar again dropped below the 0.67 barrier. The minutes of the February RBA meeting are seen as rather soft as the bank discussed the pros and cons of further easing.

In Europe, ZEW investor confidence will be closely monitored. A sharp deterioration in confidence due to the impact of corona might weigh further on the euro. The US Empire Manufacturing index is expected little changed.
Today’s data may confirm the divergence in economic performance between Europe and the US. This shouldn’t be a big surprise. Even so, it won’t help 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 Monday, sterling fell prey to modest profit taking. There were few important UK data. Sterling traders focused more on the highly divergent positions of the EU and the UK at the start of the trade negotiations. Today, the UK labour data will be published. Job growth is expected to slow to a still solid 148 k (3M/3M). UK eco data recently showed signs of improvement. However, the labour market is a lagging indicator and last month’s report was strong. So, a positive, sterling supportive outcome maybe isn’t that evident for this series. Still we keep a sterling constructive bias going into the eco data later this week.

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KBC Market Research Desk

KBC Bank

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