USD May Rise if Sentiment Data Spurs Demand for Havens
US DOLLAR, EUR/USD, EURO, ECB, ASSET PURCHASE PROGRAM, CORONAVIRUS – Talking Points
- US Dollar may gain on risk aversion, liquidity demand if sentiment data underwhelms
- European Central Bank holds interest rates, provides 120b Euro stimulus to Eurozone
- EUR/USD ripe for a downside breakout as the pair retreats from 12-month resistance
ASIA-PACIFIC RECAP: STOCK MARKS SELLOFF DEEPENS
Early into Asia’s Friday trading session, the growth-oriented Australian and New Zealand Dollars held their ground despite US equity futures pointing to a continuation of a broad risk-off tilt in market mood. This sour sentiment was amplified after news broke that US jets struck key locations in Iraq where Iran-backed militia Kata’ib Hezbollah were reportedly positioned. This could lead to an escalation in US-Iran tensions after a rocky start to the year.
ECB RECAP: WHAT DID LAGARDE SAY?
The European Central Bank (ECB) surprised markets when it announced that it was not going to cut interest rates further into negative territory. However, President Christine Lagarde said a 120b Euro stimulus will be implemented until year-end. She assured markets that monetary authorities are ready to adjust all instruments as needed and that the ECB’s policies will help smooth provisions of credit.
However, Ms. Lagarde warned that the coronavirus has been a major shock to growth prospects with incoming data signaling a “considerably” worse outlook. The impact of COVID-19 has clouded the future, and as such, it is expected to negatively impact investment. Officials also stressed the necessity for coordinated fiscal policies since the impact of monetary stimulus may not be as effective with rates in negative territory.
US DOLLAR MAY RISE ON RISK AVERSION FROM WEAK CONSUMER DATA
The US Dollar may continue to rise against its major counterparts if preliminary University of Michigan sentiment data for March shows a leak in America’s proverbial engine: private consumption. The latter accounts for over 70 percent of GDP, so naturally monitoring indicators that track the behavioral disposition of consumers driving this dynamic is crucial.
U. of Mich. sentiment is expected to show a 95.0 print with the prior release at 101.0 with the current conditions component anticipated to show a 112.8 reading, slightly under the previous 114.8 report. If the statistics underwhelm and risk aversion ensues, the US Dollar may fair well against its G10 counterparts as investors flock to highly-liquid assets like the world’s reserve currency: The Greenback.
EUR/USD PRICE CHART
EUR/USD continues to decline after failure to clear the 12-month high at 1.1448 and is now testing the upper cusp of an inflection point (labelled as “Uptrend Alpha”) dating back to early October 2019. Once cleared, the pair may aim to challenge 1.1091, an oscillating price level that has acted as both support and resistance since December 2019. See my take on what may happen if that floor is broken here.
EUR/USD – Daily Chart
EUR/USD chart created using TradingView
US DOLLAR TRADING RESOURCES
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.