Euro Says “Zut Alors” And Heads For The Floor

EUR/USD briefly breaks 1.0500 as French political worries continue to weigh on the single currency.

Euro briefly touched 1.0497 in early Europe trading, ignoring better than expected German IFO data (actual 111 vs 109.6 expected). Political considerations seem to be closer to the front of traders minds as Ms Le Pen continues to extend her lead in French Presidential polls.

Readers will remember that we have consistently said since last year that political risk in the form of Federal Elections in France, Netherlands and Germany represent the greatest source of volatility in Europe for 2017. Make no mistake that the populism that has sacked the status quo in Britain and the United States is alive and well i9n Europe as well.

Yield spreads in the 10-year France/Germany bonds have moved out to 78 bps with the German 2-year  yield falling to around -0.90%. Better data generally in the Eurozone seems unable to hide the shaky foundations of the Euro at the moment.

Rattling the Euro’s cage will also be better than expected UK Q4 GDP data (+0.7% vs 0.6% expected), and the passing of the Brexit Bill’s 1st reading in the House of Lords. As history has repeatedly shown, those British just won’t roll over in the face of being told what to do by the Europeans. Some history lessons are just never learnt.

In fairness the GBP is also a little lower this morning as the USD, in general, is stronger across the board (for now), further compounding Euros woes.

Looking at the daily chart, EUR/USD has resistance at 1.0600, the 55-day moving average, with support at 1.0497 the daily low and then 1.0450 the low from the 11th January. A daily close below here from a technical perspective sets up a move to 12-month lows in the 1.0340/50 region. This, however, may be difficult to sustain ahead of Trumps 28th February speech and the mid-March FOMC meeting. A break back above 1.0600/20 moves us back into the 1.0500/1.0800 holding pattern we have been circling in since the start of the year.

As a final note Eurozone Annual CPI has just come out at +1.8% YoY, as expected. This is the highest level apparently since early 2013. The EUR/USD is unmoved at 1.0505 and although CPI seems to be responding to the ECB’s stimulus, the price action, or lack or reaction further reinforces the view that it is politics, not economics driving the markets at the moment. As if this is a surprise!!

EURO Daily

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