Why Euro Hasn’t Fallen

The EUR/USD has been more buoyant than expected recently, even though the recent data from Eurozone disappointed and US data were relatively strong. I believe that in order to answer this question, we have to look at three euro-crosses, EUR/JPY, EUR/GBP and EUR/CHF. Euro/yen has been advancing since Oct. 31 when the Bank of Japan introduced further stimulus measures, to reach levels last seen in 2008. EUR/GBP moved higher following the Bank of England’s disappointing inflation report. While EUR/CHF has seen speculative selling, as the rate moved towards the Swiss National Bank floor, and the decline is attempted to be offset by purported buying by the SNB in order to defend the cross floor at CHF1.2000. All the above reasons make me believe that there is a strong appetite for euro, which makes it resilient against its major counterpart, USD. The euro-bearish investors may have to rethink their stance, at least in the short-term and at least until the ECB second TLTRO allotment.

On Thursday, the US consumer prices rose 1.7% yoy in October, unchanged in pace from the previous month and above expectations of a softer 1.6% yoy print. Initial jobless claims fell to 291k from last week’s revised level of 293k, above consensus of a decline to 284k. The closely watched 4-week moving average rose to 287k from 285k a week ago, still suggesting a strong employment growth. Meanwhile, existing home sales came at 5.26 mn in October, up from 5.18 mn previously and exceeding expectations of a more or less unchanged reading. Earlier this week, housing starts declined a bit, while building permits surged in October and on top of Thursday’s existing home sales, it seems that the housing activity revives after a soft summer. A signal that the market's modest recovery is supporting what appears to be growing strength in the broader economy.

Regardless of the overall positive data, the greenback failed to gain its strength and traded lower against its major counterparts. The dollar has corrected lower against most of its G10 currencies over the past few days, we believe that a structural rise in USD is taking place and the greenback could regain its strength. One possible point of concern though, as we mentioned in a previous comment, is the unseasonably extreme cold weather that could lead to adjustment of the economic data.

Oil prices moved a bit higher on Thursday and continued to advance in early European hours, as investors weighed the likelihood that at the OPEC summit on November 27, the members will cut output. OPEC members have so far resisted calls to cut output, even as oil prices have fallen approximately 25% since their June peak. The Vienna summit next week could give a better picture regarding oil, given that consensus holds among the members who have already initiated bilateral meetings. Otherwise, oil prices could decline further. (see technical part below).

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Overnight, New Zealand’s credit card spending accelerated 1.3% mom in October, from +0.2% mom in September. Even though there was no major reaction at the release of the indicator, kiwi began strengthening a few minutes before the event and remained elevated a few pips below 0.7900. Since its peak in July, NZD/USD has depreciated approximately 10%. Nevertheless, since the country’s central bank in its last meeting reiterated the view that it expects further depreciation, I would expect the weakening fundamentals (low inflation rate) to weigh on the currency. However, a move below our support of 0.7660 is necessary to get more confident for further declines.

Today’s activity: We have no major events or indicators to be released from the Eurozone, the UK nor the US.

In Canada, the CPI rate for October is expected to remain unchanged at 2%, in line with the Bank of Canada target. This could prove CAD-supportive.

As for the speakers, ECB President Mario Draghi and Governor Jens Weidmann speak at the European Banking Congress.