Euro ignores the Eurozone Q4 GDP slowdown to 0.1% as coronavirus monopolize the attention. The outcome was in line with forecasts but a tad below consensus expectations for a rise of 0.2% q/q. Above average growth in Spain, while French data earlier unexpectedly showed the French economy contraction in the fourth quarter 2019, so the lacklustre Eurozone number is not a real surprise, especially as the German economy is likely to have stagnated.
Eurozone HICP inflation also released, and presented a lift to 1.4% y/y in January while core inflation actually fell back to 1.1% y/y from 1.3% y/y. However, even the headline rate remains far below what the ECB defines as price stability, so there is nothing in the data to challenge the ECB’s view, even if Lagarde seems eager to move beyond official inflation rates and include perceptions of price developments in the central bank’s considerations.
Still while uncertainties on the trade front have receded somewhat, the impact of the coronavirus is already starting to cast a shadow over the outlook and the trade talks with the UK and the U.S. also won’t be easy. Plenty of downside risks then, that will see the ECB maintaining the very accommodative policy stance through this year.
In the market, EUR holds a neutral stance against US Dollar and Yen, benefits against commodity currencies but remains under significant pressure against Sterling. In general January has been a tough month for commodity currencies and especially for NZD and AUD.
EURAUD jumped by nearly 530 pips since the beginning of the year, breaking 5-month Resistance at 1.6430. In the current week, there was a sharp move out of the the high-beta risk currencies such as NZD and AUD which drove both to a big decisive bullish weekly candle. EURAUD is traded outside weekly BB pattern, while EURNZD moved above 50-week EMA recovering more than 38.2% of Q4 losses. The close of the weekly candle could trigger the attention for both pairs. A strong close of the week, along with the bullish crosses noticed from the momentum indicators suggest the turn of assets’ outlook to positive and could open the doors towards 2019 highs for both pairs.
EURUSD has put in another sub-20-pip range so far today. Recent declines in EURUSD was a reflection of the US Dollar having been outperforming the common currency in the context of rising risk aversion in global markets. The US currency is registering as the strongest of the main currencies on the year-to-date, reflecting international demand for Treasuries (the dollar is up by 4.7% versus the Aussie dollar, which is the weakest, and is showing a 0.3% gain on the yen, which is the second strongest). Bigger picture, EURUSD has been trending lower since early 2018, dropping from levels near 1.2500 and posting a 32-month low at 1.0879 in early October, the current nadir of the trend. Momentum has faded, however, with the Fed having backed out of its tightening phase after hiking rates three times last year.
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Andria Pichidi
Market Analyst
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