The euro has slumped more than 7% against the U.S. dollar this year

Good morning from Hamburg and welcome to our first Daily FX Report of the week. This weekend China has joined the wave of global easing with its second rate cut in three months, as central banks from Australia to the euro region ramp up their monetary policies amid concerns over growth and low inflation. A private measure of factory output in Asia’s largest economy is due today, Monday, after a government gauge out Sunday indicated the sector contracted a second month. It seems quite clear is that China is slowing down and considering the weight of its market in the global economy, this is something that should worry to all of us. As a consequence of the measure adopted by the PBOC, the yuan slipped to a two year low in early trade.

Anyway, we wish you a successful trading day!

Market Review – Fundamental Perspective

The yen held a two day decline, and the bearish trend is expected to continue after China cut interest rates, encouraging speculation stocks in Asia will climb and damp demand for haven assets. Japan’s currency fell 0.1% to 119.77 yen per dollar in first trading hour today. The U.S. dollar rose 0.1 % from the highest close since, at least 2004, on prospects the Federal Reserve will raise interest rates this year, boosting the currency’s allure. On the other side, the Australian dollar dropped before the Reserve Bank sets monetary policy at a meeting on Tuesday. The Aussie fell 0.2% to 77.90 U.S. cents. New Zealand’s dollar also fell against U.S. dollar 0.3% to 75.43 U.S. cents. Regarding the euro, the shared currency continues with its weakness, declining once again against the U.S. dollar 0.3% to $1.1168. With Mario Draghi poised to start injecting unprecedented amounts of money into the Eurozone economy, the euro will remain under pressure the following months. In this direction, some analyst already predict that the euro might falling 11% by the end of the year, reaching the parity with the U.S. dollar for the first time since 2002. This depreciation would also bring some benefits for the Eurozone, like faster inflation and more competitive exports. The euro has slumped more than 7% against the U.S. dollar this year, touching an 11 year low of 1.1098 on January 26th. The European Central Bank said on January 22nd Quantitative Easing program would start sometime in March and last, at least, until September 2016, being possible to be expanded along the way.

Daily Technical Analysis

EURUSD (Monthly)

From a long term perspective, the EURUSD is immerse in a downtrend channel initiated with the highs of 2007. Since then, the euro has been losing a great part of its value, especially in the last 10 months, moving from 1.39 dollars per euro to the current quote of 1.1170, which means around 20% of decline. At the moment the trend is bearish in all time frames, identifying as the most significant support, the level of 1.0750. Over the current price, the 1.1770 and 1.2118 are important resistances to consider in case of an eventual change of the trend.

Support & Resistance (Monthly)