- Last week’s ECB meeting and FOMC meeting minutes have confirmed that the interest rates will stay lower in 2019.
- The return of the US dollar weakness supporting the G10 and EM currencies to outperform since early April.
- EURUSD capped at 200MA (Weekly) seems at 1.1340, high so far this week at 1.1320.
Recent euro area macro-economic data and political headlines are less dramatic than before. Overall data studies suggest that the eurozone growth set to remain weak as the economic fundamentals are weak and the outlooks remain dull. Moreover, recent ECB dovish tone should cap the incoming rallies at crucial resistance levels.
Last week ECB stood pat on its interest rates and likely to remain on wait and see approach. “The Governing Council expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”.
Nick Kounis at ABN AMRO said “Our base case is that ECB policy interest rates will remain on hold through to the end of 2020 and that reinvestments will continue to the end of 2021. Second, we think that the ECB will announce relatively easy terms on the new TLTRO-III in June. The pricing will probably be similar to TLTRO-II so banks can borrow at rates as low as the deposit rate if they meet certain lending benchmarks. “
Data wise, euro area Industrial Production down by 0.2%, according to the Eurostat.
The week ahead in the euro area, this short week is all about PMI surveys. On Tuesday, April German ZEW Economic sentiment will due out. In March, the Sentiment for Germany recorded a strong increase of 9.8 points, with the corresponding indicator climbing to a level of minus 3.6 points, according to the official release.
March Inflation rate will be due out on Wednesday. In February the euro area inflation rate was up by 0.1% to 1.5% from 1.4% in January.
Danske bank said, “We do not expect any revision, but the final print will reveal how much of the slump in services prices was due to seasonal effects related to the timing of Easter, which is likely to reverse in April.”
Euro area PMIs surveys will be out on Thursday. In March Flash EZ PMI falls as manufacturing downturn deepens, according to IHS Markit. Flash Eurozone Manufacturing PMI at 47.6 vs. 49.3 in February 71-month low. In contrast services, PMI showed greater resilience at 52.7 vs. 52.8 in February, a 2-month low.
The EURUSD still trading sideways but we traced out a double bottom formation between March-April at 1.1175-1.1180 levels. Before we have a look at the chart, we like to highlight the fact that the dollar index is showing weakness and this likely to continue in this short week ahead.
As we noted in last week’s article, the price had come close enough to our target which we set last week. Now the key resistance seems to be at 1.1330 its 200MA (Weekly) with supports finds at 1.1280 and 1.1230, bias is still impulsive up but cautious needed.
There is no sign of a trend change as we stuck in a narrow range and we are not getting any help from the daily RSI, it lacks conviction whereas the oscillator is remaining bullish. The three-day range (Tue-Thu) likely to stay between 1.1350 its 100MAs and 1.1230.
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