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Euro May Fall on Eurozone Confidence Data as COVID-19 Spreads

Euro May Fall on Eurozone Confidence Data as COVID-19 Spreads

Dimitri Zabelin, Analyst

EURO, SWISS FRANC, CORONAVIRUS, EUR/CHF OUTLOOK – TALKING POINTS

  • Euro may fall if Eurozone confidence data underwhelms
  • Spreading coronavirus is undermining regional recovery
  • EUR/CHF losses may continue as it flirts with resistance

ASIA-PACIFIC RECAP: COVID-19 HAUNTS EQUITIES

APAC equities continued to experience market-wide pandemonium as fear about the coronavirus continued to undermine bullish sentiment. This followed another bloody day on Wall Street after the S&P 500 suffered another aggressive selloff and declined almost one percent as it trades at three-month lows. This came as spreads on credit default swaps for sub-investment grade corporate debt in Europe surged to six-month highs.

Chart showing CDS spreads

At the start of Asia’s Thursday trading session, US President Donald Trump held a press conference about the coronavirus but failed to calm market angst. The Commander in Chief announced VP Mike Pence would be taking charge of handling COVID-19 and announced that he is considering cutting off other countries from entering the US. The economic ramifications of such a policy could further derail the global recovery.

EURO MAY FALL ON EUROZONE CONFIDENCE DATA

Eurozone economic confidence data for February is expected to remain unchanged at 102.8 with its industrial equivalent anticipated to show a -7.2 reading. However, the growing number of confirmed coronavirus cases across Europe may have infected the outlook of participants taking part in the survey. Consequently, these statistics may underwhelm and further dampen the outlook for Eurozone growth.

Chart showing Eurozone confidence data

This comes as the region was beginning to show signs of stabilization before the growth-disrupting effects of COVID-19 began to impact economic activity. Italy, the third largest Eurozone economy has reported over 340 cases of the virus with Germany’s health minister warned that the proverbial steam engine of Europe is at the beginning of an epidemic.

Chart showing Eurozone confidence data

The Euro 5Y5Y inflation swap forward – a favored price growth indicator of the ECB’s – is less than one third of a percent away from its all-time low at 1.1688. This suggests that market participants believe regional inflationary prospects are now even more likely to remain subdued in light of COVID-19. This may in turn make it more difficult for the ECB to remain neutral and may inflame expectations that they will step in.

Chart showign EUR 5Y5Y Inflation Swap Forward

EUR/CHF PRICE CHART

EUR/CHF has been trading without direction after it touched a five-year low amid a market-wide selloff in the Euro as risk aversion prompted regional traders to buy up the anti-risk Swiss Franc. The pair is now trading in a narrowing range between descending resistance and support at 1.0610 with growing pressure on whether an upside or downside breakout out is in the cards. The fundamental context supports a bearish bias.

EUR/CHF – Daily Chart

Chart showing EUR/CHF

EUR/CHF chart created using 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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