The U.S. dollar traded lower against all of the major currencies with the exception of the Australian dollar. This divergence is a sign of risk aversion and not a function of Australia’s economy as there were no major economic reports released this past week.
The RBA minutes were also optimistic. The only other explanation for AUD’s underperformance is the decline in iron ore prices. The best performer was the Japanese yen and the British pound. The former rose on risk aversion while the latter rallied on healthier data. All of these moves are at risk in the coming week with Article 50 expected to be triggered and U.S. fiscal policy in focus.
Key Levels - EUR/USD
- Support 1.0700
- Resistance 1.1000
EUR/USD broke above 1.08 on the back of stronger Eurozone data and a good performance by Emmanuel Macron during the first French Presidential debate. According to Friday’s PMI reports, manufacturing and service sector activity accelerated in the Eurozone, led by gains in Germany and France, the region’s 2 largest economies. The 3 month average PMI composite index rose to its highest level in 6 years as the Eurozone economy recovers on the back of a weak currency and accommodative monetary policy. Two weeks ago, members of the European Central Bank brought up the idea of tightening and while they are in no position to raise interest rates anytime soon, we could start to hear less dovishness from ECB officials. But there is one problem, which is inflation – the euro may be weak but price pressures are not rising as evidenced by the slowdown in producer price growth in the month of February.
This week the German IFO report is scheduled for release along with German consumer prices and unemployment. The IFO, which measures business confidence should rise after the strong PMI reports and the same is true for the Eurozone confidence reports and job growth. According to Germany’s flash PMI, job creation was the strongest since March 2011 and the second highest since the series began in January 1998. Inflation on the other hand should remain low but collectively this week’s reports should help more than hurt the euro.