EUR/USD: Further downward pressure – Rabobank

For the first time in almost three years, EUR/USD spent some time below 1.08. Analysts at Rabobank expect more bearish pressure in the pair following weak German data and lower Chinese growth forecast.

Key quotes

“The currency pair’s lurch lower followed a relatively weak reading from the ZEW survey. The index that should track the expectations of investors plummeted from 26.7 in January to 8.7 in February, whereas the assessment of the current situation declined from -9.5 to -15.7.”

“Optimists may find some reassuring words in yesterday’s statement from the EU finance ministers, in which they concluded that ‘if downside risks were to materialise, fiscal responses should be differentiated, aiming for a more supportive stance at the aggregate level, while ensuring full respect of the Stability and Growth Pact’.”

“The statement adds to the arguments that the ECB will probably keep its policy on hold in the next few meetings. That said, it remains to be seen whether this would actually result in timely and substantial fiscal expansion from the German side, and we therefore do still believe that the ECB will have to take further action later in the year.”

“If the virus continues to hit forecasts for Chinese growth, we could also expect further downward pressure on EUR/USD.”