Euro Recovering in Crosses, But Not Out of the Woods Yet

Market overviews

The forex markets are a bit mixed today while trading is subdued. New Zealand Dollar stays as the strongest on RBNZ rate hike expectations. Swiss Franc and Euro are following, primarily thanks to recovery against Sterling. Yen is currently the weakest one for the day, followed by the Pound and then Canadian. But the weekly picture is unchanged, with Sterling and Dollar as strongest, Euro and Aussie as weakest.

Technically, while Euro recovers against Yen, Sterling, Aussie and Canadian, it’s not totally out of the woods against Dollar and Swiss Franc. We’d firstly watch 1.1262 temporary low in EUR/USD and 1.0505 key support in EUR/CHF. Firm break there could indicate resumption of broad based selloff in Euro. On the other hand, break of 1.1384 minor resistance in EUR/USD and 1.0596 minor resistance in EUR/CHF would argue that Euro has found a bottom already, at least for the near term. More short covering would likely follow.

In Europe, at the time of writing, FTSE is down -0.23%. DAX is down -0.07%. CAC is up 0.10%. Germany 10-year yield is down -0.0216 at -0.265. Earlier in Asia, Nikkei dropped -0.30%. Hong Kong HSI dropped -1.29%. China Shanghai SSE dropped -0.47%. Singapore Strait Times rose 0.13%. Japan 10-year JGB yield rose 0.0092 to 0.084.

US initial jobless claims dropped to 268k, continuing claims dropped to 2.08m

US initial jobless claims dropped -1k to 268 in the week ending November 13, above expectation of 260k. Four-week moving average of initial claims dropped -6k to 253k. Both were the lowest since March 14, 2020.

Continuing claims dropped -129k to 2080k, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -100k to 2157k, lowest since March 21, 2020.

Also released, Philly Fed manufacturing survey jumped to 39 in November, up from 23.8, well above expectation of 21.5.

OECD: France GDP to grow 6.8% in 2021, 4.2% in 2022

OECD projects a strong 6.8% growth in France GDP in 2021, followed by 4.2% in 2022. Private consumption is forecast to grow 4.8% in 2021, and a further 6.8% in 2022. Unemployment is expected to drop to 7.8% this year and then 7.6% next. CPI is expected to be at 1.9% this year, then slow to 1.7% next.

“France’s response to the COVID-19 crisis has been swift and effective, enabling it to emerge from the health crisis with jobs and household incomes well protected and its economic capacity largely preserved,” OECD Secretary-General Mathias Cormann said. “A rigorous implementation of the government’s Recovery and Investment Plans will help to turn the rebound into lasting sustained growth, building a greener, more digital and more resilient economy.”

Panetta: ECB to develop digital euro prototype in 2023

ECB Executive Board Member Fabio Panetta said in a speech, “Over the next two years we will investigate the key issues related to the design and distribution of a digital euro”.

The digital euro will be designed to be an “efficient means of payment”, but also to “preserve financial stability”. He added, “we will need to strike a balance between maximising its appeal as a means of exchange and limiting its use as a form of investment.”

The Eurosystem High-Level Task Force on Central Bank Digital Currency is working to identify “use cases and design options”. After this phase, ECB will move on to examining “technological solutions. Panetta said, “we expect to narrow down the design-related decisions by the beginning of 2023 and develop a prototype in the following months.”

RBNZ survey: Four rate hikes over next seven meetings

In the latest RBNZ survey for Q4, 2-year ahead inflation expectations rose from 2.27% to 2.96%, highest since June 2011. 5-year inflation inflation expectation rose from 2.03 to 2.17%, highest since September 2017.

Currently, the OCR is standing at 0.50%, after a rate hike of 25bps in October 6. Survey respondents expect OCR to rise further to 0.75% by the end of the current quarter. Mean estimate for OCR one year ahead was 1.53%, translating to four 25bps hike over the next seven RBNZ meetings. Two year-head expectations stands at 1.83%, with more respondents expecting OCR to be either at 1.50% or 2.0)% by the end of September 2023.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1281; (P) 1.1306; (R1) 1.1349; More…

Intraday bias in EUR/USD remains neutral for the moment, with focus staying on 1.1289 long term fibonacci level. Sustained break there will carry larger bearish implication, and extend the fall from 1.2348 to 161.8% projection of 1.1908 to 1.1523 from 1.1691 at 1.1068. On the upside, above 1.1384 indicate short term bottoming and turn bias back to the upside for stronger rebound.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
02:00 NZD RBNZ Inflation Expectations Q/Q Q4 2.96% 2.27%
07:00 CHF Trade Balance(CHF) Oct 5.65B 4.90B 5.05B
13:30 CAD Foreign Securities Purchases (CAD) Sep 20.02B 20.05B 26.30B
13:30 USD Initial Jobless Claims (Nov 12) 268K 260K 267K 269K
13:30 USD Philadelphia Fed Manufacturing Nov 39 21.5 23.8
15:30 USD Natural Gas Storage 25B 7B