– Still seeking a catalyst for a EUR rebound
This morning’s European trading session has again been unkind to the EUR with an unexpected rise in German unemployment for March and a further slowdown in eurozone M3 money supply growth. In contrast, German retail sales improved and Italian business confidence rose slightly. Looked at together, this set of data bolsters chances of an ECB rate cut in Q2 that is the base case of our economics team. Such a cut would likely weaken the EUR in our view. Furthermore, peripheral yields are again widening relative to the core especially given the lack of progress from Pierluigi Bersani in forming a new Italian government. Still, our measures of eurozone stress – including our weighted average sovereign spread – the Eurostoxx Financials Index both suggest that EURUSD is oversold at current levels (see chart). Additionally, our BNP Paribas technical analysis highlights that despite EURUSD breaking below the key 1.2806 level, MACD has turned up signalling that the move lower may be coming to an end. Accordingly, we believe that EURUSD will be biased higher on any positive developments in Cyprus or Italy.
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BNP Paribas