According to Viraj Patel, Research Analyst at ING, for pro-cyclical currencies like the EUR, the next set of business confidence and expectations data will be vital – especially ahead of the April ECB meeting next week.
“We’ll get the latest ZEW survey this week (Tue); recall how last month we saw a sharp fall in investor sentiment (led by Germany) – which was chalked down to heightened trade war fears. The question is whether this was a major overreaction to Trumpian hype or whether the added mix of geopolitical risks has now further weighed on EZ investor confidence. If we were to see a bounce-back, it would be telling of how economic agents are willing to look through the external trade war and geopolitical noise – and focus on the (fairly) unchanged fundamentals. Complete negligence to what’s going on, however, is unlikely – the reality is that we’ll find a middle ground between ‘business as usual’ and ‘let’s wait-and-see’.”
“By extension, the same is true for the EUR bull trend; while the cyclical recovery is in pause mode, the medium-term dynamics of broad-based EZ economic strength combined with low domestic political risks and a large external surplus makes the EUR an attractive investment currency. Our year-end target is 1.30, but look for EUR/$ to trade within 1.22-1.24 for now.”