Euro Exchange Rates Today: EUR Continues to Outperform as Inward Flows Continue

By Rob Samson

The euro exchange rate complex continues to find support as investors pump money into the Eurozone whose equities are considered both cheap and safe relative to other areas in the world.

Following on from yesterday's constructive price action, the key euro rates have today enjoyed further advances:

  • The euro dollar exchange rate (EUR/USD) is 0.14 pct higher than seen last night at 1.3725.
  • The euro pound exchange rate (EUR/GBP) is 0.23 pct higher at 0.8220.
  • The euro Australian dollar (EUR/AUD) exchange rate is 0.3 pct higher at 1.5225.

(Note: All EUR quotes here refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.)

Why is the euro exchange rate complex higher?

Safety is not a word that has been associated with Eurozone assets over the past couple of years; however when contrasted to emerging markets it does seem apt.

The capital inflows from emerging markets into the Eurozone continue to boost the area's currency. Further flow support is being realised as on the view that Eurozone equities are considered cheaper than US equities.

UPDATE: Our afternoon note questions the size of inward flows, we hear some bearish views on the EUR's longer-term outlook.

"The EUR continues to outperform most expectations, and even though the data remains substantially weaker than UK or US data, the case for further EUR strength remains because of the natural flow into the EUR underlined by the current account surplus, the latest data on which is reported today," says a foreign exchange rate note issued by Lloyds Bank.

Further, Lloyds say:

"This flow is more important when speculative activity is moderate and natural flow is dominant, so the EUR18bn or so a month that flows into the Eurozone current account becomes relatively more significant. Over the long run, movements in the current account and the basic balance of the Eurozone do have a consistent impact, and currently still suggest some upside risks for the EUR.

EUR/USD has traded a narrow range between 1.3690 and 1.3720 over the last 24 hours, a result of a lack of economic indicators and President’s Day in the US.

Data is back on tap today thought. A look at the latest Eurozone data shows the ZEW Survey - Economic Sentiment (Feb) - came in at 68.5, markets had expected 73.9.

The German ZEW Survey - Current Situation (Feb) - improved to 50, markets had expected 44.

Concerning the outlook for the EUR/USD, analyst Ipek Ozkardeskaya at Swissuqote Bank says:

"EUR/USD is close to the key resistance at 1.3739. Hourly supports are given by 1.3657 (intraday low) and the short-term rising channel (around 1.3635). Another resistance can be found at 1.3819. Monitor the medium-term horizontal range between the support at 1.3477 and the resistance at 1.3739. In the longer term, we favour a broad horizontal range between 1.3296 (07/11/2013 low) and 1.3893 (27/12/2013 high)."

Overnight FX action: Bank of Japan in focus

The Bank of Japan has given the yen a bit of a smack overnight after a slightly more dovish statement overnight following its latest policy meeting. The BoJ said it will “double the scale” of two loan schemes that were set to expire in April and extend them for another year.

The facilities enable financial institutions to borrow funds at a fixed rate of just 0.1% for four years.

"While this is not being seen as an aggressive move by the Bank of Japan – more reminiscent of the Shirakawa-led entity – it is the first change in policy since last year’s April meeting," says Jeremy Cook at WorldFirst.

Whether this is in response to the poor GDP number from Q4 – the latest release showing an economy growing at 1.0% annualised, much lower than the 2.8% that the market had expected – or a planned decision given the likely tightening of conditions that the sales tax increase will cause, we don’t know.

It is clear that the Bank of Japan does not want to get left behind if central banking policy worldwide turns dovish once again.