FX Daily: Euro Looking Vulnerable

The flip-flop on the use of the AstraZeneca (AZN) vaccine and the extension of lockdowns signal more short-term pain for the euro.

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USD: Bond market stabilizes

The week starts with US bond markets looking a little more stable and much focus on the surprise removal of the Central Bank Governor in Turkey. On the former, the US Treasury market has absorbed the news well that the Supplementary Leverage Ratio exemption of US Treasuries would not be extended. Perhaps US banks had expected that decision after all and had adjusted their exposure to the US Treasury market over recent weeks. In any case, the threat of a disorderly sell-off in US Treasuries may lessen this week – especially with US February data expected to come in on the soft side and a dovish refrain expected from Federal Reserve speakers this week. With regards to developments in Turkey, the Turkish lira was briefly 15% weaker in Asia overnight. The market will be following developments closely and questioning what the new governor means for policy orthodoxy. Developments in Turkey, and Europe will not help the global risk environment this week and DXY risks a move up to the 92.50/70 area.

EUR: Third wave blues

EUR/USD is now sitting comfortably under 1.19 and looks set to press the 200-day moving average at 1.1855. The flip-flop on the use of the AstraZeneca vaccine has damaged confidence and will seemingly only extend the delays already witnessed in Europe’s vaccine rollout. The breakout of vaccine nationalism is also unedifying. From a macro perspective the extension of lockdowns – Germany may well announce an extension of lockdowns to 18 April today – will necessarily see eurozone 2Q growth forecasts cut – also softening the narrative of a synchronized global recovery. One of the few supporting pieces of news for the EUR is positioning. The latest CFTC data shows a big capitulation in speculative EUR longs in the latest reporting week, with net long EUR positions now having corrected to levels seen last June. For the early part of the week, however, the 1.1855 area looks at risk. Look out for the European Central Bank's Asset Purchase Program report today and a whole host of ECB speakers (FXE).

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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