The euro hit a record high against the U.S. dollar after further evidence of improvement in German business confidence. The ZEW investor expectations index improved to five-month high of -32 in March from -39.5, one week after the IFO index hit a three-month high in February. EUR/USD jumped by a full cent in less than one hour to $1.5494, sending gold higher by $15 to $985 per ounce. The report solidifies the euro’s broadening rally by quelling expectations of an European Central Bank (ECB) rate cut and further damages sentiment in the dollar.
We could see further dollar losses at 8:30 am when the U.S. trade deficit is expected to have widened to $59.5 billion in January from $58.8 billion due to soaring oil imports. The silver lining of the U.S. trade gap is that U.S. exports have grown for an unprecedented 10 consecutive months, while imports have risen three times out of the last 10 months. A figure above $59 billion would also pose a drag on U.S. Q1 gross domestic product (GDP) growth and further confirm a recession.
Euro eyes $1.5530 after ZEW
The euro powers ahead across the board after the ZEW’s economic expectations index improved to -32.0 from -39.5, overshooting expectations of a -40.0 figure. The current conditions indicator eased to 32.1 from 33.7, but was better than the 30.0 median forecast. After the figures, Bundesbank Chief and ECB Governing Council Member Weber said the German economy shows “solid upswing,” adding that inflation may not recede much. Weber reiterated the ECB’s line that of increased downward risks to growth.
EUR/USD: eyes $1.5520 and 1.5555, with downward retracement seen supported at 1.5430 and 1.5470.
EUR/CAD: surges to fresh 10-month highs at 1.5370 and will likely extend gains to 1.5390. Key resistance stands at 1.5425, but rising oil prices may stand in the way for a possible 1.5440. Support climbs to 1.5250 and 1.5280.
EUR/AUD: faces interim resistance at 1.6800, followed by 1.6830, with support climbing at 1.67 and 1.6730.
USD/JPY cappped at 102.80
The Japanese yen drops across the board on improved risk appetite following a broad sell-off in Wall Street, but stabilizing conditions in Europe have led to profit taking in the Japanese currency. Overall sentiment remains yen positive especially after the S&P 500 broke below the 200-week moving average for the first time since 2004. Former "Mr. Yen," Eisuke Sakakibara said today the yen will pass the Y100 level soon as the U.S. economy enters recession in H1 while adding that China’s financial bubble will collapse. Mr. Sakakibara was the highly influential Vice Finance Minister for International Affairs during the late 1990s whose words were notorious for causing sharp yen fluctuations.
USD/JPY faces interim upside at 102.40, followed by 102.75-80, but lingering uncertainty in U.S equities is seen recalling the 101.80 and 101.50 targets.
Sterling thrives on euro strength
Negative UK housing news is not reflected in the GBP/USD rate as the currency followed the euro higher against the USD. The UK’s Royal Institute of Chartered Surveyors said 4% of surveyors reported rising home prices versus 57% reported falling prices, leading to a net balance of - 53%. Adjusted for seasonal factors, the net balance stands at - 64.1%, the worst since housing crash of 1990.
Cable eyes $2.0190, followed by 2.0230, but renewed declines in equities are seen negative for the high yielder. Downside target stands at $2.0150, backed by 2.0110.
EUR/GBP: supported at 76.50 and 76.45, while upside ripe for extending gains through 76.70, followed by 76.80.
Ashraf Laidi
Chief FX Strategist
CMC Markets US
a.laidi@cmcmarkets.com
