EUR USD (1.3205) News of slowing output in China, as well as in the eurozone, appeared to sour the mood in the stock markets yesterday. Equity declines were not huge, at least not in context of the year-todate gains, but it seemed that investors’ had been mentally transported back to the beginning of 2012 when similar anxieties prevailed. The fear back then was that the early signs of economic recovery were not sustainable. It was commonly thought that the eurozone economy would plunge back into recession, fuelled by a worsening peripheral debt crisis, and that job creation in the US would peter out. In short, investors believed that the data would ultimately roll over accompanied by stock prices. The problem was that stock market climbed this ‘wall of worry’ even faster than usual, leaving many investors under-invested. As a result, start-of-the-year stock market sceptics have embraced the indication that they were ‘right all along’ on the economic data, even though they may have made too few profits in the meantime. It should be remembered that even though the European PMIs were below consensus and below the previous month’s figure, they are just back at the levels that prevailed prior to the first LTRO in December 2011. Our key upside hurdle at 1.3295 has proved an impressive ceiling this week. We would only endorse a bullish view (potential to 1.3490) if this hurdle is overtaken. The best nearby support is still at 1.3110.
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Deutsche Bank