EUR/USD Reaction to Dollar Surge: Eurozone Tiptoeing into Slightly Better Data
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EUR: Eurozone tiptoeing into slightly better data
It is hard to argue that the huge EUR/USD jump had much to do with the euro itself yesterday. In the havoc of a huge dollar correction, markets flooded into high-beta currencies, and in Europe Scandinavian currencies (Swedish krona and Norwegian krone) were naturally favoured to the more defensive euro. Still, before the US CPI figures, EUR/USD was finding some support after ZEW expectations surprised on the upside in Germany with a bounce from -1 to 10 (first positive reading since April). The same index for the whole euro area reached the highest level since February. That probably puts more emphasis on upcoming data to gauge whether there are any more tentative signals of “peak pessimism” that may bring along some idiosyncratic EUR support.
Today, eurozone industrial production figures for September should be largely overlooked, but some greater focus will be on the EU Commission's economic forecasts. There are no scheduled European Central Bank speakers today before two consecutive days of President Christine Lagarde speeches.
In line with our dollar view discussed above, we are inclined to think a pull-back to the 1.0800 mark is appropriate given short-term valuation (EUR/USD 1.5% overvalued). Conversely, a break above 1.0900 (probably on more US data weakness) would be significant and make 1.1000 the next key resistance.
