No Game Change For EUR

The EUR was the big looser this week, and this despite the dollar trying to give a chunk of it back on Friday. The currency nail in the coffin was this weeks latest Spanish auction. An auction that should ‘put to rest to any lingering doubts whether the LTRO related rally on peripheral debt is over.’ It was a bad auction, bad for debt markets and bad for the EUR. Spain happened to end up selling at the lower end of their range (EUR2.5b-3.5b), delivered product at higher average yields and a low bid-to-cover ratio point to investors “repricing periphery risk.” This is doing nothing for regional financial health perception. If anything, its making the ECB’s task even harder. The ECB kept rates on hold with no new news and no innovations from the meeting. On what is transpiring peripherally, expect markets to rebuild ECB easing expectations as their economies struggle. The game change has the markets looking to use upticks as fresh EUR selling opportunities as the underlying bias remains with the bears.

Below are some other highlights of the week:


  • EU: Euro-zone manufacturing PMI at 47.7 was unrevised from the flash estimate, confirming the fall from 49.0 in February. French PMI was revised substantially lower to 46.7 from 47.6 (lowest in three-years). German PMI was revised a touch higher, but at 48.4, the level is rather weak. Meanwhile in the periphery, PMIs picked up in Greece and Ireland and moved sideways in Italy and Spain. Overall, the levels remain in contraction territory.
  • GBP: UK manufacturing PMI rose to 52.1 last month, from 51.5 in February, firmer than the consensus expectation for a drop to 50.7. This is the highest number in a year and suggests that the UK economy is maintaining positive momentum at the end of Q1.
  • UK: According to Hometrack Housing, UK house prices rose +0.2%, m/m, in March, the first rise in 21-months.
  • CHF: Swiss manufacturing PMI improved to 51.1 from 49, above consensus for 49.5. This follows the better-than-expected KoF print last week. However, with inflation still in deflation territory, this should change little for SNB policy in the short term.
  • SEK: Swedish PMI moved sideways in March, weaker than market expectations. The details were also relatively weak with employment and domestic orders still below the 50 threshold. Will the SEK lose rate support on further negative data surprises?
  • CEE: March manufacturing PMIs staged a rebound in central Europe, in particular Hungary (up to 56.8 from 51.2) and Czech Republic (52.1 from 50.5), while Poland’s PMI returned above the 50-threshold.
  • TRY: Turkish GDP growth slowed in Q4 to +5.2%, y/y, from a revised +8.4% in Q3.
  • GBP: UK construction PMI rose to 56.7 from 54.3, much better than the 53.4 expected. Fundamentally, this should support Q1 GDP and help the UK avert technical recession. Many expect GBP to remain supported against mainland Europe over the short term, however, weak growth and low yields would not be a big supporter of GBP on a ‘trade-weighted basis.’
  • TRY: Turkey’s inflation rose +0.4%, m/m, in March, lower than the consensus for +0.6%. Despite the lower headline, analysts note that the run-rate of core-inflation has failed to improve last month. Last weekend’s energy price hikes should worsen the outlook for inflation.
  • EU: Germany’s ifo, France’s Insee and Italy’s Isat say that the 17-nation currency bloc contracted -0.2% in Q1and maintains a second quarter forecast of no growth. Technically, the 332m people using the single currency may suffer stagflation.
  • EUR: The hawkish shift in Fed policy expectations continues to weigh on risk appetite, with investors expressing their disappointment that the Fed is unlikely to launch another round of QE by buying back the dollar and offloading equities and shying away from debt products.
  • EU: The mid-week Spanish debt auction should ‘put to rest any lingering doubts whether the LTRO related rally on peripheral debt is over.’ It was a bad auction, bad for debt markets and bad for the EUR. Spain happened to end up selling at the lower end of their range (EUR2.5b-3.5b), delivered product at higher average yields and a low bid-to-cover ratio point to investors “repricing periphery risk.”
  • GER: German factory orders rose +0.3%, m/m, in February, below expectations for +1.5%. -January’s print was revised up, to -1.8% from -2.7%, but this still represents a large decrease.
  • EU: Euro-zone PMI services held up better than expected. The flash estimate was revised to 49.2 from 48.7, up from 48.8 in February. This also helped the composite PMI, which was revised to 49.1 from 48.7, now only marginally lower than the 49.3 print in February.
  • GBP: UK services PMI surprised very strong, rising to 55.3 in March from 53.8 previously, well above consensus for 53.4. The breakdown was also solid, with employment and new business prices up on the month. Analysts note that the strong print follows upside surprises in both the manufacturing and construction PMIs and suggests growth momentum picked up at the end of Q1. It is no wonder that Sterling is currently outperforming mainland Europe.
  • EU: EURCHF spot traded through 1.2000 momentarily due to technical and credit reasons. SNB floor back in play with global market focus on policy makers.
  • CHF: Swiss headline inflation declined further into deflationary territory to -1.0%, y/y, in March from -0.9%. The deflationary pressure came mostly from imported goods, which fell 3.6%, y/y, while domestic inflation is zero. Core-inflation remained at -1.2%, y/y, its lowest level since inception.
  • CHF: SNB FX reserve rose to +CHF237.5b March from +CHF227b in February.
  • GER: German, IP surprised very weak dropping -1.3% in February, below consensus for a -0.5%, m/m, fall. This more than reversed the +1.2% gain in March (revised lower from 1.5%mom previously). Part of the weakness can be attributed to the weather and a sharp drop in construction. Nevertheless, this casts some doubt over the strength of growth recovery in Germany particularly as manufacturing PMI dropped below 50 this month.
  • GBP: UK manufacturing production fell -1.0%, m/m, in February, well below consensus for +0.1%. Additionally, January’s print was revised lower to -0.3% from +0.1% previously. This suggests poor underlying growth momentum in the UK.



ASIA Week in FX



  • JPY releases its current account ahead of interest rate announcement
  • CNY is busy with Inflation, Trade and Growth data this week
  • NZD deliver Business Confidence while AUD release Employment
  • USD and CAD both bring Trade numbers
  • Inflation numbers are also released in USD along with Claims


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell