Euro rebounds on peace hopes and German yield rise

The euro rebounded strongly today on the hope of a positive evolution of the negotiations between Ukraine and Russia. Chief Russian negotiator Vladimir Medinsky said the talks were constructive and a Putin-Zelensky meeting is possible. The BBC also quoted Russian Deputy Defense Minister Alexander Fomin as saying they were going to “drastically reduce” military activities outside Kyiv and Chernihiv. Additionally, the common currency is boosted by the rise in the yield of the German 10-year Bund, which exceeds 0.7% for the first time since 2018. On the other hand, the Swiss franc is largely sold on the reverse flow of values safe havens, followed by the dollar. .

Technically, immediate attention is now focused on certain levels in the euro pairs to confirm the underlying rally. Levels include resistance at 1.1120 on EUR/USD, temporary high at 0.8456 on EUR/GBP. More importantly, the break of the 1.0400 resistance in EUR/CHF will resume the rebound from 0.9970 to 1.0610, key structural resistance. A new breakout will be a sign of a bigger bullish reversal.

In Europe, at the time of writing, the FTSE is up 1.33%. The DAX is up 2.67%. The CAC is up 2.99%. Germany’s 10-year yield is up from 0.118 to 0.700. Earlier in Asia, the Nikkei rose 1.10%. Hong Kong’s HSI rose 1.12%. China Shanghai SSE fell -0.33%. The Singapore Strait rose 0.06%. Japan’s 10-year JGB yield fell from -0.0072 to 0.252.

German consumer sentiment Gfk fell to -15.5, hopes faded

German Gfk consumer sentiment for April fell sharply from -8.5 to -15.5. In March, economic expectations plunged from 24.1 to -8.9, the lowest since May 2020 during the first lockdown at -10.4. Income expectations fell from 3.9 to -22.1, reaching the lowest value since 2009, which was -22.9. The propensity to buy fell slightly from 1.4 to -2.1.

“In February, hopes were still high that consumer sentiment would pick up significantly with the foreseeable easing of pandemic-related restrictions. However, the onset of war in Ukraine dashed those hopes. Rising uncertainty and the sanctions against Russia have in particular caused energy prices to skyrocket, putting a strain on general consumer sentiment,” explains Rolf Bürkl, consumer expert at GfK.

Also released, the Import Price Index rose 1.3% m/m in February, below expectations of 2.1% m/m.

BoJ Opinions Highlight Importance of Maintaining Monetary Easing

In the Summary of reviews of the March 17-18 meeting, the BoJ noted, “unlike the US and the UK, Japan is not in a situation where the inflation rate is likely to exceed the price stability target 2% continuously. Therefore, “it is important that the Bank continues monetary easing to support economic recovery from the pandemic.”

The situations surrounding Ukraine have “caused price hikes for energy and other items”, which “will lower domestic demand while increasing the CPI”. In these circumstances, it is “necessary to improve labor market conditions and provide stronger support for wage increases”.

One member warned that “if downward pressures on economic activity and prices increase, the economy is more likely to slide back into deflation. If it becomes difficult to achieve the price stability objective, the Bank must act with agility and without hesitation.

Freed from Japan, the unemployment rate fell from 2.8% to 2.7% in February, better than the expectation of 2.8%.

Retail sales in Australia rose 1.8% in February to the second highest on record

Retail sales in Australia rose 1.8% m/m to A$33.09 billion in February, well above expectations of 1.0% m/m.

Quarterly statistics director for the wider economy, Ben James, said February’s results saw retail sales hit their second-highest level on record after November 2021 and turnover continues to regain the lost momentum caused by the peak of the Omicron epidemic in January.

“The decline in the number of COVID-19 cases in February, alongside the further easing of restrictions during the month, saw consumer spending return to a pattern similar to that seen previously as states and territories exit of a wave of COVID-19,” James said.

EUR/USD mid-day outlook

Daily Pivots: (S1) 1.0954; (P) 1.0977 (R1) 1.1008; Continued…

EUR/USD rebounds strongly today and the immediate focus is now on 1.1120 support turned resistance. A sustained break there will argue that it at least corrects the decline from 1.2265. The intraday bias will be back to the upside for a 38.2% retracement from 1.2265 to 1.0805 to 1.1363. On the downside, however, the break of 1.0943 support will maintain a short-term downtrend and bring a retest of 1.0805 low.

Overall decline from 1.2348 (2021 high) is likely to continue as long as 1.1494 resistance holds. A firm break of 1.0635 (2020 low) will increase the chances of a resumption of the long-term downtrend and target a retest at 1.0339 (2017 low) thereafter. Nonetheless, the breakout of 1.1494 will keep the medium term outlook neutral and extend the term range first.

Economic Indicators Update

GMT Ccy Events Real Forecast Previous amended
23:30 JPY February unemployment rate 2.70% 2.80% 2.80%
23:50 JPY BoJ Opinion Summary
00:30 USD M/M retail sales February 1.80% 1.00% 1.80%
06:00 USD Germany Gfk Consumer Confidence Apr -15.5 -12 -8.1 -8.5
06:00 USD Germany Import Price Index M/M Feb 1.30% 2.10% 4.30%
08:30 GBP Mortgage Approvals Feb. 71K 73K 74K
08:30 GBP Money supply M4 M/M February 1.00% 0.50% 0.10%
13:00 USD S&P/Case-Shiller Y/Y Jan House Price Indices 18.40% 18.60%
13:00 USD House price index M/M January 1.40% 1.20%
14:00 USD Mars Consumer Trust 107.9 110.5

James R. Rhodes