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EUR/USD Braces For ZEW Data, Retail Sales as Virus Sours Sentiment

EUR/USD Braces For ZEW Data, Retail Sales as Virus Sours Sentiment

Dimitri Zabelin, Analyst

EUR/USD Outlook, Euro, US Dollar, German ZEW Data, US Retail Sales – Talking Points

  • Euro and US Dollar could fall if German ZEW data, US retail sales magnify recession fears
  • Donald Trump warned on Monday that the coronavirus may plunge economy into recession
  • EUR/USD is retesting critical inflection point after it failed to clear multi-month resistance

ASIA-PACIFIC RECAP

Asia-Pacific equities continue to trade in the red despite initial signs of a modest “risk-on” tilt in FX markets. The Japanese Yen was down against its G10 counterparts while the cycle-sensitive Australian and New Zealand Dollars ticked higher. Soured sentiment from Wall Street may echo into Asia as it wakes up after US President Donald Trump said the US may enter a recession due to the coronavirus disruption.

GERMAN ZEW DATA MAY SPOOK REGIONAL MARKETS

German ZEW survey and current expectations data for March is anticipated to show a dismal -30.0 print for both reports, significantly lower than the prior 8.7 and -15.7 releases, respectively. As the largest Eurozone economy, the impact of a German slowdown will likely dampen the region’s already-dismal outlook. The total number of coronavirus cases in Europe is now over 50,000.

Chart showing coronavirus

Source: Johns Hopkins CSSE.

In Germany, Chancellor Angela Merkel banned religious services involving large groups of people and ordered for its citizens to cancel any domestic or foreign holiday travel. In addition to schools being put into lockdown, bars, zoos and playgrounds were ordered to close and restaurants were put under strict operating hours.

A lot of countries – including Germany – have also issued broader travel restrictions to avoid cross-border contagion. Consequently, inter-regional supply chain disruptions will also likely hamper the region’s recovery as markets continue to show signs of stress. The iTraxx Crossover Index – used as a benchmark for calculating the risk premium on corporate debt via CDS– is at its highest point since the Eurozone debt crisis.

US RETAIL SALES DATA MAY ECHO TRUMP WARNING ABOUT RECESSION

On Monday, US President Donald Trump warned that the coronavirus may plunge the world’s largest economy into a recession as businesses, schools and local governments initiate lockdown policies to contain the spread. Consequently, for businesses that require high density foot traffic – like restaurants, travel and tourism – this means dried revenue streams and laying off workers until the shutdown is lifted.

As a consumer-driven economy, this bodes poorly since a robust consumer has been able to keep a slowdown in manufacturing for over a year at bay. Advanced month-on-month retail sales for February are expected to show a 0.2 percent increase, slightly weaker than the prior print at 0.3 percent. A weaker-than-expected report could amplify panic and deepen the selloff in equity markets if the data supports Mr. Trump’s outlook.

EUR/USD ANALYSIS

EUR/USD is once again retesting a key inflection point (labelled as “Uptrend Alpha”) dating back to October of 2019 as it stalls just above critical support at 1.1091 (gold-dotted line). The upcoming economic statistics may cause EUR/USD to crack the familiar floor, opening the door to further liquidation if it is met with follow-through. Follow me on Twitter @ZabelinDimitri for more updates previewing the European session.

EUR/USD – Daily Chart

Chart showing EUR/USD

EUR/USD chart created using TradingView. If you are unable to see this image, click here.

US DOLLAR 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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