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Euro's fortunes set to reverse?


13 April 2021 Written by Hussein Al Sayed  Chief Market Strategist at Exinity Group (Gulf & MENA) Hussein Sayed

The euro has seen a recovery of late, strengthening against most of its G10 peers so far this month except for versus the Swiss Franc and the Swedish Krona. Such a performance is reflected in the EUR index climbing by more than one percent on a month-to-date basis. This is an equally-weighted index, comprising the following currency pairs:

A couple of key technical events have transpired of late that should form a more solid base for this index to climb higher.

Firstly, prices have formed a higher high and have breached its 50-day simple moving average (SMA). Meanwhile, its MACD has recently moved above the base line of 0. A sustained break above the 1.3210 line, which was the resistance level form early March and also the support level for some early February price action, could ultimately lead the EUR index to the 1.3277 mark. Otherwise, a break back below its 50-SMA could open a path back towards the 1.3100 mark.

Euro’s fate depends on key data

The euro has been able to hold on to recent gains, following its better-than-expected February retail sales data that was announced yesterday. It rose by 3% compared to January, beating estimates of 1.7%. The year-on-year figure shrank by 2.9%, which is still better than the 5.3% decline that markets had expected. Both the month-on-month and year-on-year prints also fared better than January’s figures.

Investors will have to several key events to monitor over the coming days that could determine the shared currency’s performance over the course of the week:

Tuesday, April 13

Friday, April 16

Euro’s outlook mixed

Intriguingly, the 25 delta risk reversals show that markets are bullish on the euro’s performance against all other G10 currencies, except against the Japanese Yen, for the next 2-month period. Meanwhile, the latest data from the CFTC (Commodity Futures Trading Commission) for the week of April 6 shows a mixed outlook for the euro. Leveraged funds have raised their net-short positions on the euro to the highest since July. On the other hand, asset managers have increased their net euro longs to reverse two consecutive weeks of paring back such positions.

Note that the EU recovery fund that’s worth 750 billion euros is due to course its way through the bloc in the middle of this year, once it is ratified by member countries. Such financial aid is set to offer more help to the continent’s recovery into the post-pandemic era.

Until then, it is imperative that the continent has a firm grip on the pandemic and gets its vaccination drive back on track to catch up with the inoculation rates seen in the UK and the US. That could form the basis for its economic recovery which could then translate into a sustained rebound for the euro.

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