Wednesday, April 24, 2019

The Euro's case remains bearish but today's IFO data may throw it a lifeline

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
  • Oil

MORNING BRIEFING

The Euro comes front and center today ahead of the German IFO survey pending for release later in the morning. The shared currency is in need of some good news, having come under more pressure over the past 24 hours. The Dollar saw broad gains yesterday but 10-year yields retreated, casting doubts on whether the greenback's advance can be sustained. Robust US earnings sent the S&P 500 to record highs as the earnings' season is in full swing, Gold edged further lower on Dollar's strength while Oil moved higher to hit $66.50.

The spotlight falls on the Euro this morning in light of the German IFO report, which will attract market participants' attention. Business activity in Germany has slowed down in recent months, especially in the manufacturing sector, tracking Eurozone's broader downtick. However, expectations for today's report are in favor of an improvement in the business confidence index, which will be rather helpful for the battered Euro.

The shared currency has now dropped to 1.12, losing more than 100 pips since last week's 1.1320 highs and depending on how the figures print we may see further losses or an opportunity for a recovery. In case economists' expectations for a positive IFO reading prove right, the Euro will gain as investors will look to take profits on their short positions, with the 1.1250 area coming into focus. On the flip side, another bearish set of data will not bode well for the Single currency with the next area of interest to the downside found around the 1.1180 April lows.

Sterling was another victim of Dollar's rally during yesterday's session and the currency dropped below the 1.2950 area. We spoke about an emerging opportunity to short Cable yesterday as a bearish pattern has formed on the 4-hour chart and yesterday's break below the key 1.30 support could be considered as a trigger point for the sellers to join the fray. It is now important to see how the day proceeds and whether the breakout lower will be sustained or swiftly reversed. If prices manage to remain below 1.30 over the next 24 hours, then the case for Cable retreating further towards 1.28 becomes even more likely.

Gold edged further lower yesterday hitting the $1,267 area which was our near-term target for the yellow metal ever since it reversed lower. However, this is an important level of support which begs the question whether Gold can move past it and continue losing ground. It's interesting to note here that even though the Dollar gained yesterday, 10-year UST yields retreated - a sign of investors' lack of confidence - so it remains to be seen whether these worries will boost the safe haven instrument. Technically, a bounce from the $1,267 mark brings the $1,280 area back into focus. On the other hand, Oil remained on a bullish trajectory and the $66.50 level was reached; momentum has been slowing down however so the odds of more gains in the short term are diminishing and a pullback may be seen soon.

US equities moved to record highs as stronger than expected earnings from Twitter and Lockheed Martin drove the S&P 500 above the 2,900 mark. The focus remains on the quarterly performance of US equities with more stocks pending to release their results but technical indications start to suggest that the rally has now become overstretched. However, the question remains: what could halt equities' advance and push them lower? It would take a series of bad misses in heavyweights' earnings or a key economic indicator printing to the downside. Friday's US GDP report will be closely followed.

MARKET EVENTS TO WATCH

  • German IFO Expectations - 12pm
  • German IFO Current Assessment - 12pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research