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Euro Forecast Gloomy as DAX Breaks Trend-Defining Support

Euro Forecast Gloomy as DAX Breaks Trend-Defining Support

2020-02-26 08:00:00
Dimitri Zabelin, Analyst
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Euro, Swedish Krona, Norwegian Krone, Coronavirus – Talking Points

  • Euro may fall vs Swiss Franc as coronavirus spurs demand for regional anti-risk assets
  • Slower Chinese growth, spread of COVID-19 threatens to derail the Eurozone recovery
  • German DAX equity index shattered key support, opening door to an aggressive selloff

ASIA-PACIFIC RECAP

Asia-Pacific equities were mixed early into Wednesday’s trading session after Wall Street endured another aggressive selloff. USD/KRW rose again and is up over five percent since the start of the coronavirus outbreak after news broke that the export-oriented country reported over 1,000 confirmed cases – up from 51 a week ago. On balance, risk aversion is elevated with Asian CDS spreads on corporate entities at a three-week high.

EURO OUTLOOK BEARISH VS SWISS FRANC

The Euro may continue to decline against the Swiss Franc as EUR/CHF trades at a five-year low and is approaching critical cross section as the spread of the coronavirus stokes demand for anti-risk assets. Italy has reported 322 cases of COVID-19 and has shut down 10 towns in an effort to reduce the probability of regional contagion. Milan, the country’s financial hub located in the North, is virtually on lockdown.

Chart showing coronavirus outbreak

Source: Johns Hopkins CSSE

This could push the already-fragile economy closer to a recession amid a broad slowdown and weakened demand from Germany, the region’s proverbial steam engine. Overall, risk aversion remains elevated with yields on 10-year German bunds down over 138 percent since the outbreak of the coronavirus on January 20 in conjunction with a weakened EUR/CHF exchange rate.

10-Year German Bunds, EUR/CHF – Daily Chart

Chart showing EUR/CHF

EUR/CHF chart created using TradingView

DAX OUTLOOK

The virus-shaken DAX plunged almost six percent at the start of the week and has endured its biggest one-day loss since June 23, 2016. Along its descent, the German index shattered a crucial support zone between 12886.550 and 12948.170, opening the door for further losses as it trades at five-month lows. The DAX may extend losses as it trades under the shadow of a bearish overhang cast by the ceiling it just broke.

DAX Index – Daily Chart

Chart showing DAX

DAX chart created by TradingView

EURO TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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