EUR: Current Sentiment DriversLatest Developments:
March 28 – Spain’s coronavirus cases increased to 3,264,705 (+4,220) while Italian cases increased to 3,532,041 (+19,595) and French cases increased to 4,545,589 (+37,014).
March 17 – Final HICP for February remained unchanged from January at 0.9% Y/Y; although, Core HICP was confirmed at 1.1%, compared to January’s 1.4%.
March 11 – At their March meeting, the ECB kept all three key rated unchanged as expected, and although the size of PEPP and APP remain unchanged, the ECB stated that purchases under PEPP in the next quarter are to be conducted at a significantly higher pace.
March 9 – Revised GDP for Q4 printed at -0.7% Q/Q and -4.9% Y/Y compared to -0.6% Q/Q and -5.0% Y/Y for the flash estimates.
February 1 – Europe’s Unemployment Rate for December remained unchanged at 8.3%.
Future Sentiments Shifts:
EUR’s outlook remains highly dependant on the coronavirus outbreak and Europe’s economic outlook.
Concerns over Europe’s coronavirus outlook have risen since late last year, with many countries now suffering second waves and re implementing lockdowns. Although countries appear better equipped compared to their initial outbreaks, Europe’s coronavirus outlook poses significant downside risks to their economies.
Additionally, although the EU is rolling out a vaccine programme, it has faced several obstacles and widespread criticism.
All in all, while coronavirus concerns remain high in Europe, risks for EUR will be to the downside, especially when compared to the currencies of countries that are managing their outbreaks and vaccine rollouts more effectively.
Primary Drivers:
European Central Bank – Europe’s monetary policy outlook remains key to EUR’s fundamental outlook. EUR is likely to be supported when the ECB holds a hawkish stance and begin tightening policy, but come under pressure when the central bank holds a dovish stance and is expected to ease policy.
Month End Flows – During the last few trading days of every month, EUR is usually influenced by month end flows as banks and institutions rebalance their books and settle transactions. Although not always the case, more often than not, month end flows tend to be EUR positive especially against GBP.
USD –EURUSD is the most traded currency pair in the world, making up 24% of daily forex trades according to the Bank of International Settlements (BIS). As such, movements in USD often influence EUR, with EUR weakening when USD strengthens and EUR strengthening when USD weakens.
