European Update | April 17


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By: Andrai Pichidi

As we move towards European session and on US open, the narrow trade-weighted USDIndex has lifted from moderate losses to a 0.3% gain on the day, while the safe-have Yen is also now outperforming. COil prices have plunged to fresh decade lows, and the likes of the Australian and Canadian dollars have more than reversed intraday gains that were being seen in the Asian session. The Dollar, looks to have broken its inverse correlation with global stock market direction.

European stock markets have rallied, with a 4% jump in the French CAC 40 leading the way. GER30 and UK100 are up 3.7% and 3.2% respectively and markets are in full risk on mode, with US futures posting gains of 2-3%. Asian stock markets shrugged off the first contraction in China’s economy for decades and investors are focusing on some encouraging headlines on drug trials in the battle to get Covid-19 under control. Weak data releases out of China for Q1 were overlooked and largely expected.

EURUSD has dropped back amid a general bout of Dollar gains, which has pushed the pair to a 10-day low at 1.0811.  The risk-on sentiment isn’t covering the full spectrum of asset classes and currencies. EURUSD at prevailing levels is a little to the south of the halfway mark of the volatile range that was seen during the height of the market panic in March. The rapid deployment of monetary stimulus measures by the Fed, and expectations for more, have impacted the Dollar in recent weeks, having satiated what had been a surge in demand for the world’s reserve currency. 

The EURUSD decline is mainly driven by the “safety” on dollar however the european data  earlier also kept the common currency under pressure.  Eurozone HICP inflation confirmed at 0.7% y/y, in line with the preliminary number and down from 1.2% y/y in the previous month. No surprise there then and the full breakdown confirmed that lower energy prices were a key factor behind the deceleration in the headline rate. Services price inflation also decelerated,while looking further ahead once lockdowns are eased goods prices are likely to accelerate amid the likely surge in demand, but large parts of the services sector will continue to struggle.

European car registrations dropped 51.8% y/y in March, with Eurozone numbers down nearly 60%. Hardly a surprise considering lockdown rules across countries and the April number is likely to be worse. The main question is how strong the rebound will be once restrictions are eased and whether the sharp rise in jobless numbers will lead to a general decline in demand this year.

Hence EURUSD after whipping between a 1.0637 low and a 1.1494 high in March, remain in a choppy trading pattern, lacking clear directional bias for now in the medium term. Also it worths mentioning that it moves within a descending triangle since March top. The daily indicators meanwhile continue to be negatively configured however as RSI is slopping at neutral zone since April 1st, along with the flat signal line of MACD, the medium term points consolidation. 

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