The Euro is Edging Closer to a Cliff

. 3 min read

Overview:

  • The US dollar is keeping a strong tone as global growth uncertainty weighs on global currencies.
  • GBP/USD turns negative after the House of Commons could not find a breakthrough on the second set of alternatives votes.
  • Oil futures are trading near a five-month high on OPEC output cut.

Highlight:

The euro has lost nearly 3.4% of its spot value against the greenback since the beginning of the year. Weak economic data and longer than expected moderation in regional growth continue to weigh on the shared currency. The ECB also revised its growth projection lower and has signaled that current monetary policy will remain in place till the end of 2019. EUR/USD is currently sitting on key 1.12 level.

US DOLLAR

The US dollar is little changed and is still trading near a four-week high following lower than expected durable goods numbers. New orders fell 1.6% following three successive monthly increases. Core durable number was up 0.1% whilst there was an upward revision for the January numbers.

The announcements calendar is light today and we expect the market to turn their attention back to the Brexit saga across the Atlantic. GBP is under pressure, down 0.3% after the UK MPs fail to agree on new alternatives. The Antipodean currencies are also trading lower after the RBA left its cash rate unchanged at 1.5%, citing growing global downside risk. Meanwhile, oil futures continue to point higher with a barrel of oil now trading near a five-month high. WTI has strengthened 21.35% since January with global market tightening amidst a drop in OPEC production.

BRITISH POUND

We continue to have multiple subplots to the ongoing Brexit drama. Each debate at the House of Commons is adding to more uncertainty and moving away from having a clear consensus.  The MPs were once again unable to agree on the second set of indicative votes. Low demand and investment delays from businesses meanwhile continue to weigh on the construction industry. The headline Markit/CIPS UK Construction Activity Index improved marginally to 49.7 (from 49.5 in February) but details revealed that the business activity slumped to its fastest pace since March 2018. The pound is down 0.25 percent on the day against the greenback.

EURO

The euro is slipping lower against the US dollar, flirting with sub 1.12 levels this morning. Economic data from the Eurozone has been hardly encouraging, with the German PMI recording its worst reading in seven years. The outlook for the EUR/USD is bearish and a break below current levels could see the pair tumbling to ranges last seen in 2017.

CANADIAN DOLLAR

USD/CAD is trading within a narrow range after a rather surprisingly positive assessment from the Governor of the Bank of Canada.  BoC Poloz believed recent soft data was transitory and the economic slack is expected to narrow down with rapid expansion in the services sector. The Canadian dollar remains near the lower end of a recent trend, fetching 75.05 US cents.

AUSTRALIAN DOLLAR

The AUD is a little lower in immediate response. The cash rate remains unchanged at 1.5% as the labour market remains strong, with skills shortages in some areas. Earlier yesterday, Building Approvals hit the cover off the ball in recording a +19.1% increase for February, compared with -1.8% forecast.

FEATURED CURRENCY

Dollar-yen is trading sideways in the absence of market-moving data. The pair are locked in a 20 pips range, looking for clear direction. Japan’s manufacturing sector sees weaker demand and further slowdown after the PMI slumped at its fastest rate in three years.  

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