BBH - "Euro: The month-long slide is carrying into March. The euro broke below $1.30 for the first time since mid-December. While momentum indicators are getting stretched, there is not divergence. Our next target is near $1.2880, the 50% retracement of the gains scored after ECB's Draghi promised to do whatever it took (within his mandate, broadly interpreted). The 200-day moving average is a bit lower, near $1.2840. A break there signals a move toward $1.2700. On the upside, the $1.3070-$1.3100 should now offer resistance.
We continue to point out that the US-Germany 2-year interest rate differential continues to track the euro-dollar exchange rate closely. The spread itself is driven by the German 2-year. Recognition of the passive tightening of monetary conditions and interest in the higher yielding periphery, saw the German 2-year yield rise from around minus-10 bp in early December to 32 bp in late January. It finished last week near 3 bp. Ahead of the ECB meeting, amid increased talk a rate cut following the poor PMI figures, and what is likely to be protracted political uncertainty in Italy, may see the German 2-year yield slip a bit more. We suspect, however, that it is too early for the ECB to cut rates and that some position adjustment is likely prior to its meeting on March 7."