EUR/USD crumbles on mixed EU economic data and concerns over EU politics

• EUR is under pressure on broad recovery in USD.
• EUR is also under stress on EU politics.

EUR/USD is now trading around 1.2334, crumbling by almost 0.59% in Tuesday NY session on mixed EU economic data and a broader dollar recovery.The EUR was also under pressure after the ECB got a new Vice President on consensus nomination in the form of De Guindos, the current Spanish economy/finance minister.

Incidentally, FM of Spain is not an economist and thus the market is concerned that the appointment of a non-economist political figure may tarnish the image of ECB’s independence. Elsewhere, Germany’s acting Finance Minister Peter Altmaier said Mr. Guindos would be an “excellent choice” for the role.

On Tuesday, overall EU economic data was mixed. German PPI for January came above estimate at 2.1% against an estimate of 1.9%; prior: 2.3% (YOY), while it was up on MOM basis at 0.5% vs estimate of 0.5%; prior: 0.2%.

German ZEW current conditions for Feb came below expected (92.3 vs estimate 93.9; prior: 95.2), while German ZEW economic sentiment came upbeat (17.8 vs estimate 16.5; prior: 20.4). THe EZ ZEW economic sentiment came above estimate at 29.3 vs estimate 28.4; prior: 31.8. EZ consumer confidence for February also came negative, at +0.1 against +1.00 expected.

Overall, German ZEW data was mixed and it may be also a function of volatile German stock market. As par ZEW: “EZ/German inflation expectations have started to rise and German economy seen improving in next 6 months”.

Meanwhile, Eurogroup's Centeno said that  European economies becoming increasingly resilient and that accommodative policy has played its part in recovery as a lot has been achieved in terms of risk reduction.

EUR may be a victim of US dollar recovery and EU politics:

But right now, the EUR may be a victim of EU politics and US dollar recovery. Next week, all the focus may be on German politics as Merkel is awaiting the result of the ballot of her potential “grand” coalition partner SPD. The vote is a postal ballot among SPD's 464,000 members on the question if the SPD should go ahead in a coalition government with Merkel's conservative CDU/CSU group (coalition referendum election with Merkel).

Although the market is assuming a convincing win for Merkel by around 60/40%, in politics and elections, nothing is final before we get a final verdict and this market may be also worried as there is no “Plan B” from SPD, if this referendum fails. SPD have until March 2nd to file their votes and the outcome will be announced on March 3rd. SPD is concerned over their decreasing political popularity over coalition relationship with Merkel government. Rising popularity of AFK party (far right) may be also a cause of concern.

 Another significant political risk for EUR may be the Italian election during the first week of March.

Technical View:

Technically, EURUSD now needs to stay above the 1.2310 area; otherwise, 1.2200 & 1.2191-1.2052 may be visible soon. For any bounce back EURUSD has to sustain above the 1.2495-1.2560* zone towards 1.2595-1.2625 and 1.2762-1.2881 area in the coming days.