- EUR/USD getting knocked down to size below the 1.08 handle.
- Markets not enthused by eurozone nations reluctance to add fiscal stimulus.
- US and eurozone economic data divergence weighing on the euro.
EUR/USD is extending the downside mid-week ahead of the Federal Open Market Committee minutes with the US dollar stampede continuing. At the time of writing, EUR/USD is trading at 1.0791 between a range of 1.0782 and 1.0807. The coronavirus is still very much in the driving seat, but there is so much uncertainty that it is still too early to call it a day with regards to risk-off. However, we have seen a huge spike in USD/JPY and yen crosses are benefitting.
The latest numbers show that cases are slowing in China. Chinese officials also reported 98 deaths, the first time the daily toll was below 100 since Feb. 11, according to Reuters. There are more than 73,400 confirmed coronavirus cases globally, the vast majority of which are still in China. Most of the 1,874 deaths have taken place there, too. A top World Health Organization official also urged restraint when interpreting the new data. WHO Director-General Tedros Adhanom Ghebreyesus said it “appears to show a decline in new cases,” but any trend “must be interpreted very cautiously,” according to Reuters.
For a more positive outlook on the situation, see here: Coronavirus peaking? How will it impact the global economies and FX?. Note that the USD/JPY objective has been reached. However, As CNBC reported, “China may be reporting fewer new cases of coronavirus and fewer infection-related deaths, but it does not mean the country’s outbreak is slowing, immunologist Anthony Fauci told CNBC on Tuesday.” “I think we need to give it a few more days to determine if that’s real or if that’s the variability that you generally see,” Fauci, a member of President Donald Trump’s coronavirus task force, said on CNBC. Indeed, as weak as the yen is today, we are still seeing firm price is US Treasuries and gold. However, US benchmarks continue to climb which is likely weighing on the yen as well.
EZ and US economic recovery divergence weighing on EUR/USD
Meanwhile, as for the euro, economic releases are starting to flow which will start to give a gauge of the impact of the coronavirus on economic activity. Yesterday the German ZEW index for February was the first data reading post the coronavirus hit and it disappointed, as expected. The ZEW Indicator of Economic Sentiment for Germany fell sharply in February down 18 points to 8.7 points. Assessment of the current situation also fell to -15.7 points – much more than expected, although German ZEW expectations-current condition spread remained positive. Markets will now look to Friday’s PMIs. However, the more telling information may come in weeks and months to follow as the true extent of the economic fall out will likely take longer to feed through the global economy as long as the economic shutdown in China continues.
On the US side, the empire state manufacturing sector survey was stronger than expected, moving to the highest level since spring last year, before the US escalated the trade war. “The relative upbeat US data compared with the German ZEW release prompted a further downward move in the EUR/USD, breaking below the 1.08 level,” analysts at Denadke Bank noted. In a further blow to the euro, yesterday’s agreement by euro finance ministers was disappointing, as they stressed rather expectedly that a fiscal boost would only come if growth deteriorates, which puts additional pressure on the European Central Bank to do more.