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EUR/USD gets sold off in Asian trade as risk appetite fades

EUR/USD lost ground amid broader strength in the US dollar in Asia on Tuesday, following the dramatic drop in WTI oil prices.

Key takeaways

  • EUR/USD came under pressure in Asian trade on Thursday, amid broader risk-off sentiment following the overnight crash in WTI oil prices.
  • The sharp fall in oil was partly a result of the slump in global demand, as markets continue to assess the fallout for broader economic growth.
  • In that environment, risk-off sentiment held sway during Asian trade as stocks fell, the US dollar strengthened across the board and global stock futures turned red ahead of the FTSE market open.

EUR/USD loses momentum in Asia

EUR/USD fell back towards the $1.08 level on Tuesday after traders hit the sell button during the Asian session.

The euro posted an intra-day fall of almost 0.6% before finding support at $1.083, following a brief rally on global markets.

Earlier, UK traders had bid up EUR/USD to start the week, and the bullish price action saw the euro briefly threaten to climb back past $1.09.

But the rally ran out of steam at $1.0892, as markets turned cautious following the unprecedented selloff in global oil markets where May contracts for WTI crude prices turned negative.

That trend continued into Asia, where traders tested EUR/USD strength with a sharp selloff between $1.086 and $1.083 before the euro rallied off its intra-day low.

The move was part of broader risk-off sentiment, as regional share markets lost ground for the second straight day and global stock futures fell across the board heading into Tuesday trade.

The same trend also rippled across currency markets, as the AUD/USD and NZD/USD– both viewed as risk proxies linked to the outlook for growth – fell back against the US dollar.

Those moves saw the US dollar index climb back above 100 for the first time since 9 April, as capital flows moved back into the relative safety of the greenback as markets continue assess to outlook for the broader economy.

Bearish sentiment gathers pace

Looking at the day ahead, key data out of Europe will be led by Germany’s widely read ZEW survey of business expectations.

A sharp miss in either direction could impact EUR/USD, with the economics team at Westpac forecasting that 'another soft print is likely after an abrupt fall in March'.

Global markets will also trade in the wake of a minor political development overnight from US, after US President Donald Trump tweeted that all immigration to the US will be temporarily suspended.

Aside from the dataflow, bullish momentum for the euro is unlikely to gather much steam while northern and southern EU member states continue to take a divergent view on how to execute a coronavirus rescue package financed by Eurobonds.

The result of a separate meeting on Thursday remains in focus for EUR/USD traders, when EU council members will meet to negotiate a separate €540 billion funding package to help prop up the broader economy.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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