FX Daily: Third Wave Woes Hit The Euro

EUR/USD has broken below the important 200-day moving average support level of 1.1863, as European countries tighten or extend lockdowns in response to rising COVID cases.

Money, Euro, Eu, Finance, Currency, Business, Bank, Usa

USD: Benefiting from problems elsewhere

Concerns about the third wave in Europe and associated new lockdown measures continue to weigh on sentiment and benefit the dollar. Unlike during the USD appreciation in February, this time the struggling oil price is not protecting oil exporter FX (Norway's krone and the Canadian dollar in the G10 space). Factors behind USD strength have moved away from concerns about the reflationary impact on US Treasuries to concerns about global growth expectations. Concerns about eventual corporate tax hikes in the US are also not helping risk sentiment. USD to stay bid today, with the heavily European FX weighted DXY to continue grinding higher towards the 200-day moving average of 92.65 (UUP).

EUR: Breaking important technical levels

With the extension of European lockdowns delaying any eurozone economic recovery, EUR/USD has broken below the important 200-day moving average support level of 1.1863. Technically, this keeps EUR/USD vulnerable. We also note that while EUR/USD is currently trading below its short-term fair value, the mis-valuation is less pronounced (hence offering a lower degree of protection) than in the past two weeks given that the EUR/USD short term fair value deterioration –the current mis-valuation is c.1.5% vs an average 2% undervaluation observed over most of the past two weeks. The eurozone PMI should have limited impact on the euro today as lockdown concerns dominate (FXE).

GBP: Looking through the dip in CPI

UK February CPI surprised on the downside this morning, at 0.4% year-on-year vs the 0.8% expected (largely due to discounting for clothing). But with the full focus being on the UK vaccination advantage vs the EU and still more pronounced pick up in UK CPI expected in months to come, the effect on market pricing on the Bank of England's rate path, and hence the potential downside to GBP, should be muted (FXB).

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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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