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Euro Holds Steady Despite Risk Off in Asia

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Euro Holds Steady Despite Risk Off in Asia

The Euro held steady on Wednesday despite a risk off scenario where commodity prices have declined substantially after the worse than expected data released in China over the past week. The news that China’s exports declined 18% sent shock waves through the commodity space knocking down iron ore, copper and now crude oil.

The main news from the euro area, is the disappointing industrial production report. The 0.2% decline in January compares with a consensus forecast of a 0.5% increase. It is the second consecutive decline and the fourth in five months, underscoring Draghi’s characterization of the economic recovery as, weak, fragile and uneven.

Yields in the EU continue to remain firm on the heels of last week’s abstention by the ECB on rates, as many expected the central bank to pull the trigger on a cut of the repo to levels that were closer to zero. The yield differential between the EU and US remain steady, which has kept the currency pair buoyed.

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The EURUSD is testing resistance near the December highs at 1.39. Support on the currency pair is seen near the 10-day moving average at 1.3805. Momentum on the currency pair is positive with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory. The MACD generated a buy signal in early March, as the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread. The RSI (relative strength index) edged higher with price action, printing near 65, which is the upper end of the neutral range.

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