Euro Forecast Gloomy as DAX Breaks Trend-Defining Support
Euro, Swedish Krona, Norwegian Krone, Coronavirus – Talking Points
- Euro may fall vs Swiss Franc as coronavirus spurs demand for regional anti-risk assets
- Slower Chinese growth, spread of COVID-19 threatens to derail the Eurozone recovery
- German DAX equity index shattered key support, opening door to an aggressive selloff
Asia-Pacific equities were mixed early into Wednesday’s trading session after Wall Street endured another aggressive selloff. USD/KRW rose again and is up over five percent since the start of the coronavirus outbreak after news broke that the export-oriented country reported over 1,000 confirmed cases – up from 51 a week ago. On balance, risk aversion is elevated with Asian CDS spreads on corporate entities at a three-week high.
EURO OUTLOOK BEARISH VS SWISS FRANC
The Euro may continue to decline against the Swiss Franc as EUR/CHF trades at a five-year low and is approaching critical cross section as the spread of the coronavirus stokes demand for anti-risk assets. Italy has reported 322 cases of COVID-19 and has shut down 10 towns in an effort to reduce the probability of regional contagion. Milan, the country’s financial hub located in the North, is virtually on lockdown.
Source: Johns Hopkins CSSE
This could push the already-fragile economy closer to a recession amid a broad slowdown and weakened demand from Germany, the region’s proverbial steam engine. Overall, risk aversion remains elevated with yields on 10-year German bunds down over 138 percent since the outbreak of the coronavirus on January 20 in conjunction with a weakened EUR/CHF exchange rate.
10-Year German Bunds, EUR/CHF – Daily Chart
EUR/CHF chart created using TradingView
The virus-shaken DAX plunged almost six percent at the start of the week and has endured its biggest one-day loss since June 23, 2016. Along its descent, the German index shattered a crucial support zone between 12886.550 and 12948.170, opening the door for further losses as it trades at five-month lows. The DAX may extend losses as it trades under the shadow of a bearish overhang cast by the ceiling it just broke.
DAX Index – Daily Chart
DAX chart created by TradingView
EURO TRADING RESOURCES
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— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
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