European Open: EUR/USD holds above 1.0700 ahead ZEW sentiment report

Asian Indices:

• Australia's ASX 200 index rose by 56.9 points (0.82%) and currently trades at 6,955.40
• Japan's Nikkei 225 index has fallen by -388.12 points (-1.42%) and currently trades at 26,945.67
• Hong Kong's Hang Seng index has risen by 149.34 points (0.79%) and currently trades at 19,150.05
• China's A50 Index has risen by 186.55 points (1.45%) and currently trades at 13,027.86

UK and Europe:

• UK's FTSE 100 futures are currently up 17.5 points (0.24%), the cash market is currently estimated to open at 7,421.35
• Euro STOXX 50 futures are currently up 24 points (0.59%), the cash market is currently estimated to open at 4,143.42
• Germany's DAX futures are currently up 89 points (0.59%), the cash market is currently estimated to open at 15,022.38

US Futures:

• DJI futures are currently up 20 points (0.06%)
• S&P 500 futures are currently up 4 points (0.1%)
• Nasdaq 100 futures are currently up 10 points (0.08%)

• Asian indices are simply taking Wall Street’s lead, even if concerns of contagion are not completely removed. But a strong performance from the banking sector in the US has translated to a top performance for finance on the ASX today, although 7,000 seems to be acting as resistance as it also has the 200-day MA within the vicinity.
• Gold is trading around the $1980 level and well within yesterday’s range (which was clearly a game of two halves). Improved sentiment on Wall Street led by banking stocks saw its early gains above $2,000 evaporate, but not to the degree that gold is no longer a safe-haven.
• AUD and NZD were the weakest currency majors following the release of the dovish RBA minutes.
• WTI is holding above yesterday’s open price after its intraday break to a 15-month low fully reversed, leaving a bullish hammer on the daily chart.
• The US 2-year also printed a bullish Pinbar yesterday, leaving it open to the chance it could rise back above 4% should sentiment improve
• Keep an eye on AUD/JPY to see if it can hold above 87.00 – as a break beneath it could signal a larger move down, or act as a springboard for prices should sentiment improve.
• The US dollar index is hovering just above yesterday’s low, having pulled back to a 23-day low.
• EUR/USD is trading within a tight range ahead of today’s ZEW report at 10:00 GMT, which suggests we could be facing a breakout of it (one way or another).
• Canada’s inflation report is released at 12:30 GMT, but unless we see an unexpectedly hot report then odds continue to favour BOC holding rates steady.

The RBA discussed a pause ahead of recent market turbulence

The RBA minutes revealed that the board had discussed pausing their tightening cycle ‘at some stage’, but the fact it occurred ahead of the recent baking rout plays firmly into the hands of a pause in April.

But perhaps more importantly, it is encouraging to see the minutes back up earlier comments from the Governor. Whilst Lowe had previously spoken of a pause in November, he appeared to have gone rogue as subsequent meetings were met with hawkish hikes. So, to see the RBA on the same page effectively cements a pause in April.

ZEW economic data in focus:

The ZEW economic sentiment survey is a widely followed report, which is released for both Germany and Eurozone at 10:00. Whilst Germany’s current index remains pessimistic (below zero) it troughed in October, and the forward-looking expectations index for both Germany and the EZ are now positive and at their highest levels since February. If expectations for the future are bright, it provides hopes that growth will not be as soft as originally feared.

And perhaps counterintuitively, it also suggests the economy can handle higher interest rates – which is a good job with the ECB saying they expect inflation levels to remain elevated for some time. So we may find that an improved ZEW report today could help support the Euro, or weigh on it should it come in soft. The consensus forecast is for Germany’s expectation to drop to 17.1 from 28.1% and the EZ expectations index to fall to 16 from 29.7%. Anything below these numbers suggests higher interest rates are an issue, and that could pile pressure on the ECB to be less aggressive and weigh on the euro.

EUR/USD 1-hour chart:

EUR/USD has been trending higher on the 1-hour chart and is now back above 1.0700 and the monthly pivot point. The OBV has tracked prices higher and broken above its prior cycle high along with prices, to suggests a bullish undercurrent. Yet the recent leg higher has been seen on lower volume, and as we’re near the March 15^th high then we’re open to a bearish break below 1.0700. Otherwise, a break above 1.0730 assumes bullish continuation and brings the weekly R1 pivot into focus.

Economic events up next (Times in GMT)

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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