EUR/USD Tests Resistance But Fails Following Weaker than Expected German ZEW

The EUR/USD moved higher on Tuesday testing resistance but failing to advance.  A softer than expected German ZEW investor sentiment report weighed on the currency pair. Italian inflation was also revised lower, which could provide some time for the ECB before they begin to normalize interest rates.

Technicals

The EUR/USD moved edged lower, closing below the open, after testing resistance near a downward sloping trend line that comes in near 1.2425. Support on the currency pair is seen near the 10-day moving average at 1.2325. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occur as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

German ZEW investor confidence fell back

German ZEW investor confidence fell back to -8.2 from 5.1% in the previous month. This is a more pronounced correction than anticipated and the first time since July 2016 that pessimists outnumbered optimists. Back then it was the unexpected outcome of the Brexit vote that knocked confidence back and the index recovered in the following month. Apart from that one off negative number we have to go back to November 2012 to find negative readings. A clear warnings sign, even if the ZEW is surveying investors rather than the real economy and will thus be more impacted by market volatility and global uncertainties, which may or may not materialize.

Germany to discuss Greek debt relief

Germany to discuss Greek debt relief on sidelines of IMF meeting. According to a Handelsblatt report, German Finance Minister Scholz will discuss Greek debt relief proposals with officials from IMF, EU, ECB and ESM. One proposal is reportedly a debt buyback program for around EUR 9.5 bln EUR is debt held by the ECB and euro-area central banks with the assistance from the ESM. Officials are said to see progress and euro-area finance ministers may make a statement at the April 27 meeting in Sofia, which would open the path for IMF participation in the Greek program. However, the ECB reportedly views the buyback proposal critically and would prefer to transfer profit from Greek sovereign debt back to Athens.

Italy March HICP inflation revised down

Italy March HICP inflation revised down to 0.9% year over year from 1.1% year over year reported initially. This is still a marked acceleration from the 0.5% year over year annual rate in February, but it leaves the headline rate below the reading of 1.2% year over year in January. As elsewhere in the Eurozone the variations over the February/March period were largely due to base effects from fresh good prices and the earlier timing of Easter this year. And as the Italian headline rate is impacted by negative base effects from changes to prices for education, which have been down around 16% year over year every month from January, the low headline rate has to be viewed with caution.

ECB’s Praet says Inflation hasn’t met criteria for sustained adjustment

ECB’s Praet says Inflation hasn’t met criteria for sustained adjustment. The Executive Board member remained optimistic saying that the ECB’s “monetary policy measures are bearing fruit, and the growth outlook confirms our confidence that inflation will converge toward our aim of below, but close to 2% in the medium term”. However, while that leaves the ECB on course to phase out QE by the end of the year, he added that inflation developments “remain subdued” and haven’t yet met criteria for sustained adjustment, “which is our stated condition for ceasing our net asset purchases”. This backs our view that the ECB is not quite ready to commit to such a step just yet. Indeed, shortly before the start of the blackout period ahead of next week’s ECB meeting Praet said an ample degree of stimulus remains necessary and the ECB must be “patient, persistent and prudent”, confirming that the ECB will hold steady once again next week.

UK labor data had mixed signals for markets

UK labor data had mixed signals for markets, showing a new cycle in the unemployment rate, of 4.2%, but a sub-forecast reading in wages data. Average weekly earnings came in at 2.8% year over year (including bonuses) in the three months to February, unchanged from the previous month but below the median forecast for 3.0% year over year.