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Euro at Risk Ahead of German IFO Data and SNB Rate Decision

Euro at Risk Ahead of German IFO Data and SNB Rate Decision

Dimitri Zabelin, Analyst

EURO, EUR/USD TECHNICAL ANALYSIS, GERMAN IFO DATA – Talking Points

  • Euro selloff vs US Dollar may accelerate ahead of German IFO data and SNB rate decision
  • Coronavirus spreading throughout Europe at faster pace than mainland China. What now?
  • EUR/USD outlook bearish after pair broke critical support and is testing prior downtrend

ASIA-PACIFIC RECAP

Early into Asia’s Thursday trading session, ECB President Christine Lagarde announced a 750b Euro coronavirus stimulus package and reasserted the central bank’s commitment to the Euro. For seasoned traders, this kind of rhetoric echoed a similar message her predecessor Mario Draghi expressed when he said monetary authorities will do “whatever it takes” to save the Euro from the regional debt crisis in 2012.

The cycle-sensitive Australian and New Zealand Dollars fell while the Euro ticked higher following Ms. Lagarde’s comments. Jobs data from Australia crossed the wires but failed to elicit a notable market reaction as traders anxiously waited for the RBA rate decision. AUD fell after the central bank cut interest rates to another record-low at 0.25 percent and will target yields on three-year government bonds of around 0.25%”.

EURO AT RISK OF AGGRESSIVE LIQUIDATION AHEAD OF GERMAN IFO DATA

Preliminary German IFO data for March in the upcoming European session may amplify EUR/USD losses after ZEW data earlier this week sent the Euro tumbling below key support. While markets are rarely paying attention to economic indicators now amid blaring headlines from the coronavirus, German data – at least, for Europe – still has the capacity to move markets.

As the “steam engine of Europe”, the growth outlook for Germany has the potential to send a continental chilling effect if the region’s economic hub begins to sputter. IFO business climate, current assessment, and expectations components will be closely watched by traders, particularly the latter due to its forward-looking nature.

New coronavirus infections are now occurring mostly outside of mainland China with Europe become the new epicenter of the pandemic according to the World Health Organization (WHO). The European Central Bank Governing Council will be holding an emergency call on a response to the virus following France’ Finance Minister Bruno Le Maire saying monetary authorities should intervene quickly and “massively”.

Despite the coronavirus aid package, it is unclear how effective it will be in stimulating growth with rates in negative territory and member states being fiscally restricted by regional budgetary rules. Germany’s Chancellor Angela Merkel said the government will do everything required to help distressed companies as CDS spreads on ensuring sub-investment grade European corporate debt hover at Eurozone debt crisis-level highs.

Chart showing spread on credit default swaps

SWISS NATIONAL BANK RATE DECISION, OUTOOK

The Swiss National Bank is expected to hold interest rates at -0.75 percent following the release of their annual report which will likely carry gloomy undertones as part of the pessimistic zeitgeist permeating market mood. Consequently, this may pressure the EUR/CHF exchange rate which is already trading at a five-year low and less than four percent away from the plunge it experienced in January 2015.

EUR/USD TECHNICAL ANALYSIS

EUR/USD has shattered below the 1.0981-1.0989 support range – dating back to the last two months of 2019 – and is now retesting the prior descending resistance channel (labelled as “Downtrend Beta”). The upcoming data may catalyze another aggressive selloff in EUR/USD and push the pair below the multi-year swing low at 1.0789 and lead to a resumption of the prior steep downtrend.

EUR/USD – Daily Chart

Chart showing EUR/USD

EUR/USD 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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