German data not supportive for EUR/USD, but does it matter?

Europe is still plagued by lockdowns and restrictions.

EU (1)

Yikes!  Whereas the rest of the world is beginning to recover from the economic downturn caused by the coronavirus, Europe is still plagued by lockdowns and restrictions.  Germany is said to extend their lockdown until March 28th, a full 4 weeks after the UK is set to begin reopening.  As a result, German employment and retail sales were on the weak side.  Germany’s Unemployment Change for February was +9,000 vs -13,000 expected.  The unemployment rate was unchanged at 6%, however that may be due the people dropping out of the labor force during the lockdowns (i.e., people not looking for work).  Adding insult to injury, Retail Sales for January was -4.5% vs -0.3% expected!  Germany has not been immune to the recent rise in yields either.  German 10 Year Bund yields rose nearly 30bps during February.  The combination of worse data and higher yields may cause the ECB to intervene more aggressively in the bond market, as suggested by ECB’s Villeroy de Galhau and Panetta.

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The Euro has taken the data in stride; stocks are pushing higher today, which seems to be bringing the EUR/USD along with it. After trading in a sideways channel for 2021, the pair tried to move higher on February 25th.  However, a weak US Treasury auction caused the US Dollar to go bid and price action in EUR/USD formed a shooting star; causing the pair to close back within the range.  However, on the continued move lower today, price briefly spiked below the phycological 1.2000 round number and reversed higher.  If price closes today above 1.2101, the daily candlestick will be bullish engulfing and would suggest a move back towards 1.2183 is possible (Friday’s high and horizontal resistance).

Source: Tradingview, City Index

EUR/USD is currently banging its head up against the 38.2% Fibonacci retracement level from the Feburay 25th highs to today’s lows near 1.2088.  For your guide, the 50% retracement level is at 1.2118 and the 61.8% Fibonacci retracement level is  at 1.2147.  Support is back at today’s lows near 1.1993, ahead of the YTD lows at 1.1953. 

Source: Tradingview, City Index

Later the Euro Area will release the Markit Services PMI Final and PPI.  Expectations are for the Services PMI to be bad.  Even if the number comes out better than expected, it is still likely to be bad!  However, PPI is expected to be 1.2% MoM for January vs 0.8% last.  If PPI has beats expectations, EUR/USD may have more room to go on the upside as Produce Prices are expected to feed through to consumer prices, thus creating inflation!

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