KTM FX Weekly: 1-year anniversary of the low for EURUSD

Today March 23, is the one-year anniversary of the low in the EURUSD.

The EURUSD hit a low of 1.063 today last year and rallied 16% to 1.2350 on January 06, 2021, before lost the height rapidly. During the same period, the dollar index fell 13% to 89 levels but recovered strongly to settle above 91 levels.

Since the beginning of this year, the U.S. dollar and the U.S. Treasury yields rallies strongly. U.S. 10year Treasury yields started this year around 0.93% and reached a high of 1.74% its pre-pandemic high. During the same time frame, German 10year bunds started at -0.553% and reached -0.285% in February 2021.

On Monday, March 22, the spread Germany10 year-US 10year bond reached a low of -200.4bps, the lowest level since January 2021. With the anticipation of global economic recovery, the yields across the G10 are rallying in high gear.

We have reviewed the OECD’s latest global economic growth forecasts. Its interim report March 2021 highlighted that “Global GDP growth is now projected to be 5.6% this year, an upward revision of more than one percentage point from the December OECD Economic Outlook” We believe the growth optimism has been priced in the EURUSD cross.

Source: OECD

In the E.A., real GDP growth projections for 2021 are forecasted at 3.9%, and for 2021 it would be at 3.8%. Whereas for the United States, 2021 growth projected at 6.5%, and for 2022 it would be at 4%. This latest growth projection confirmed that U.S. is dominating the growth space on the back of CIOVID-19 vaccinations. Even the output between the U.S. and the E.A. is diverging hugely.

Uneven COVID-19 vaccine rollout, growth, and output divergence suggest EURUSD remains capped. In addition to these recent Fed meeting was more hawkish than ECB. Among G10 currencies Fed is more hawkish than RBA and RBNZ as well. Today’s N.Z. government housing policy announcement removed the rate hike probabilities.

Source: OECD

• Satish Ranchhod at Westpac says, “In terms of the RBNZ, today’s announcements mean that OCR hikes are clearly off the table for the foreseeable future.”

What does it mean to the EUR? If you are a EUR bull, then you should focus on the EURNZD cross, as the price action trading around 50MA. A decisive above means forward thrust towards 1.6800 and 1.6900 initially, followed by 1.7100.

Trade ideas: We have been recommending long EUR against the CHF, and now we add long EUR against the NZD in the basket. S.L. should place below 1.6480.

Data review: 

The ZEW Indicator of Economic Sentiment for Germany increased again in the current March 2021 survey, climbing 5.4 points to a new reading of 76.6 points compared to February, as per the official release.

The euro area annual inflation rate was 0.9% in February 2021, stable compared to January, as per Eurostat.

Looking ahead, we will get Flash PMI services on Wednesday for France, Germany.

TECHNICAL OVERVIEW

With only seven trading sessions left this month and this quarter, it would lead us to two options. Either mild recovery of 1.2000 and 1.2060 levels or further consolidation in the current range of 1.1830-1.2000 levels.

Levels to watch 1.1830, its 200MA, 1.1800, its 100MA (monthly), and 1.1750, its 61.8 fib reaction. So, overall, it’s a thick support zone one should think twice if you want to sell at the current market price. If the price starts moving higher, the resistance to look at is 1.2000 and 1.2120.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

What is your Technical View?

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