Euro keeps strengthening following ECB meeting

Summary:

  • The euro has reached its 2 and a half weeks peak fuelled by triggering buy stops in the EURJPY
  • RBNZ’s Orr remains uncertain whether the economy needs a rate cut as soon as next month
  • Household sector risk has increased, the RBA financial stability review said

Speculative demand

This week has been packed with many important releases and the ECB has undoubtedly been among them. Although the knee-jerk move was negative for the common currency, it recouped its losses thereafter. In early European trading on Friday the euro is trading 0.3% higher against the US dollar probably due to (as dealers cite) increased demand stemming from a Japanese bank’s plans to acquire the multi-billion dollar aviation finance business from a German bank. No more details have been offered thus far. On top of that, Bloomberg says that notable buying activity of EURJPY was to trigger buy stops and thereby helped EURUSD climb too. While these kind of explanations seem to be somewhat murky, the common currency has strengthened roughly 100 pips against the dollar since the beginning of April. Looking ahead, one may hope that this rally has yet to come to an end but it will be contingent on the incoming macroeconomic data with a particular emphasis on the industry sector. Let us remind that the Eurostat will release the industrial production data for February before noon and it could constitute another possibly important factor for euro traders.

Looking at the hourly chart one may arrive at a conclusion that the pair has still quite abundant space to gain. The pair is trading within the bullish channel and there are no resistances of note before 1.1325. Note also that the latest buying wave has pushed the EURUSD to its 2 and a half weeks peak. Source: xStation5

Mixed comments from Antipodean economies

Over Asian hours trading we were offered some remarks from RBNZ Governor Adrian Orr who said that he “did not know about a May rate cut”. Orr underlined that the NZ economy showed a really mixed picture and it would be much easier if everything was aligned in one direction. It is worth noting that the market-based probability of a rate cut next month hovers around 35% (not too much meaning there is downside potential for the NZ dollar if the RBNZ actually decides to trim borrowing costs). In turn, a rate decrease in New Zealand is already priced in almost 80% by the year-end. In terms of macroeconomic data published overnight we got NZ’s manufacturing PMI for March which decreased to 51.9 from 53.7, reaching the lowest point since July 2018. Apart from this, NZ retail card spending increased 0.7% YoY in March, down from 3.4% YoY seen in the previous month. Looking beyond New Zealand we also got a financial stability review from Australia, published by the Reserve Bank of Australia. The report highlighted that household sector risk increased and consumption outlook was uncertain. The Australian dollar barely responded as a majority of the statement was similar to the previous one.

The AUDNZD keeps surging a third week in a row. The cross is slowly closing the key area localized subtly below 1.07. This level could constitute some obstacle for bulls. Source: xStation5

In the other news:

  • According to Fed’s Jerome Powell rates in the US are in the right place, Bloomberg reports

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