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Euro up on Pound and Dollar, Big Japanese Acquisition Cited

Euro exchange rate

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The Euro exchange rate complex was higher ahead of the weekend with various snippets of supportive news coming through to a market thinned out ahead of the Easter holidays, including that of an acquisition of a European finance business by a Japanese bank.

The news have apparently been enhanced by falling trade volumes on currency markets, which tends to amplify events that would typically fly under the radar. Easter holidays tend to see volumes on currency markets fall sharply, with the conditions commencing around about one week prior, and ending one week after the actual holidays which are scheduled for next weekend.

The Pound-to-Euro exchange rate is quoted down at 1.1563 amongst the broader strength in the Euro, having been as high as 1.1639 earlier in the week. The Euro-to-Dollar exchange rate is quoted 0.4% higher at 1.1310, having been as low as 1.1236 earlier in the week.

There are three factors underpinning a stronger Euro ahead of the weekend:

1) Merger & Acquisition flows in 'thin' markets
2) Better-than-expected Chinese data
3) Better-than-expected Eurozone production data

Japan's Mitsubishi UFJ has confirmed it will buy the entire aviation financing business of DZ Bank, valued at around €6BN.

"Japan’s big banks, flush with cash but saddled with a shrinking population and zero interest rates, have made a push in recent years into aircraft finance, lured by better returns over straight corporate loans," says Arno Schuetze with Thomson Reuters.

The flows surrounding the deal - first announced on March 01 - actually hit in the Asian trading session and there was a sharp move higher in the Euro as a result.

Euro outperforming

Above: The Euro is the day's second-best performer. Both the AUD and EUR benefited from stronger-than-forecast Chinese trade data.

There was another solid bid for the Euro recorded when it was announced China’s exports rebounded strongly from its sharp contraction in February to register growth of 14.2% year-on-year in March. Expectations had been for growth to be at 6.5%, where February saw a reading of -20.7%.

The Australian Dollar and Euro appear to be a beneficiaries on the positive trade news and this tells us these two currencies benefit when sentiment on global trade is on the up.

"If the AUD breaks out to the upside, the Euro is not far behind. This rule really does work a little more than half the time," says Barbara Rockefeller of Rockefeller Treasury Services.

Markets are betting the Eurozone's export-lead downturn might be at a turning point. With sentiment being so resolutely pitted against the single-currency for some time now, hints of any turn in fortunes would naturally lead to gains.

Domestic data out of the Eurozone was also encouraging, with news Eurozone monthly industrial production beat expectations.

A figure of -0.2% was recorded, against expectations for a deeper -0.2%.

Eurozone industrial production data

"The surprise seemingly came from strong prints in France and Italy on the back of positive manufacturing developments, while Spanish and German industrial momentum is still trailing," says Radu-Gabriel Cristea at Barclays.

Cristea says while the data is supportive for Eurozone economic growth in the first quarter, risks to the outlook remain.

"Looking further ahead though, downside risks are still lurking, stemming from US trade policy, particularly with the latest escalation in rhetoric against the EU, Brexit and Italy," says Cristea.

On Wednesday U.S. President Donald Trump said the EU has been "a brutal trading partner with the United States, which will change".

Fears for an escalation of a U.S.-EU tariff war are a key risk for the Euro going forward we believe.

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