EUR USD (1.3370) Many market commentators attribute the euro’s current strength to yesterday’s better-than-expected German IFO. This may be because this was the only euro-positive release of the day. However, the single-currency barely rallied on the data, returned to the pre-release price level within an hour, and then fell to practically the day-low by the start of the NY session. The other main euro-news of the day was the growth forecast for the zone published by the European Commission. These were decidedly downbeat, but did little more than bring the public forecast in line with the private ones. From the US came the jobless claims figures, which were also better than expected. So it was not surprising that market observers were left scratching their heads for a reason for the euro’s stubborn strength. Our belief remains that real money flows are behind the gains. The only news that these flows respond to is that of the ECB’s LTRO. By reducing the risk premium associated with short-term sovereign and bank paper, the policy has again made the zone an attractive destination for the likes of international money market funds. In January, we drew attention to this trend after Fed data revealed evidence of US funds moving back into the single-currency. This week, a Fitch report showed the tendency is intact but, consistent with the euro move, it remains cautious and gradual. We continue to credit the euro with a potential to 1.3395 and thereafter to 1.3590. To the downside, better support should now be found at 1.3285.
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Deutsche Bank