Euro Marches Higher to Recent Resistance but Trade Talks and New Virus Cases Should Bring Caution

AUD GBP Weakness Returns with UK Rate Talk

The story for the day on the EURAUD interbank exchange rate was a 0.43% rise in the euro to trade at highs near 1.6600. This level provided resistance in early February, and it’s interesting that the British pound is also touching the same levels as the Brexit trade talks begin and the Coronavirus continues to creep through Europe.

The move in the euro has pulled back slightly from the February highs and sellers could emerge through profit-taking or fresh headlines.

Lagarde Urges Stimulus as Brexit Trade Talks Begin

Without any economic data releases for the European and Australian economies, the market was watching a speech from European Central Bank (ECB) President Christine Lagarde. The President used the platform to repeat calls for Eurozone governments to use budgetary leeway to boost growth and halt the recent slowdown.

“Fiscal measures intended to support the economy are certainly very welcome, particularly under present circumstances,” Ms. Lagarde told reporters.

This sounds like a nice idea, however many Eurozone nations are lacking any significant headroom to enact any substantial stimulus and would likely only act in a crisis when the growth picture was worse. This reality meant that the euro was unmoved by the advice.

Caution is likely to emerge as the European Union begins its Brexit trade talks with the UK. Euro nations provided a mandate on Tuesday for Chief Negotiator Michel Barnier, but UK Prime Minister was entering the talks on the front foot. As with the previous negotiations, both sides want to display a strong hand going into the talks and traders will keep an eye on the headlines to avoid being caught out if the talks turn sour.

Coronavirus is Still Creeping into the Eurozone

Stock markets in Australia were high on Wednesday after the early week bout of selling but the U.S. has pulled the European stock indices higher still as optimism emerges that this was just a dip.

Despite the confidence in the stock market and in the euro currency, the risks appear to be building on their side as the Australian economic picture is largely known and the worst-case scenarios possibly priced-in over China. The virus lockdown in Northern Italy is a concern and new cases have since emerged overnight in Austria, Croatia and Switzerland. The virus and UK trade talks are the biggest threat to the Euro’s recent recovery.

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