This pair made a bearish development on Thursday after it fell below an important level of support at 1.2754 – the July 2013 low. We mentioned earlier this week that the combination of a surge in the dollar and continued weakness in the EUR’s fundamentals could weigh on the single currency for the long-term. The break below the July 2013 low is significant, and in our view this opens the way to further downside for the long-term.
The case for a weaker EUR:
The prospects for global interest rates are dominating the market’s consciousness right now. Next week’s ECB meeting could shed some light on the ECB’s next steps and whether further easing is on the cards. Until we hear from Draghi next Thursday, the market is likely to continue to price in a dovish stance at the ECB versus a relatively hawkish stance at the Federal Reserve, which could be EUR negative. For more on next week’s ECB meeting, read our Week Ahead.
The technical view:
As mentioned above, the technical view is also bearish for the EUR, after the close below key support at 1.2754. Immediate support is now 1.2661 – the November 2012 low. Since the trading and momentum indicators are all pointing lower, if we fall below support from November 2012 then we could see back to 1.2043 – the July 2012 low.
We have also been keeping an eye on the daily RSI, which is in oversold territory. When this happens it can signal a reversal, however, in this instance we believe that the fundamental factors could continue to weigh on the EUR, and any strength in EURUSD could be short-lived. Short term resistance lies at 1.2864 – the high from Wednesday.
Takeaway:
The technical and fundamental picture looks bleak for the EUR.
The break below 1.2754 opens the way to 1.2661 – Nov 2012 low.
We think that we could drift lower into the end of the week, particularly if we get strong US data later on Friday, and 1.2661 could be the cards ahead of next week’s ECB meeting.
We believe that momentum is firmly against the EUR as both the fundamental and technical outlooks are negative, and once the Federal Reserve starts to normalise interest rates, the prospect of a dovish ECB well into 2015 could cause a drop back to 1.2043 – the July 2012 low.
CFD’s, Options and Forex are leveraged products which can result in losses that exceed your initial deposit. These products may not be suitable for all investors and you should seek independent advice if necessary.
Recommended Content
Editors’ Picks
AUD/USD stands firm above 0.6500 with markets bracing for Aussie PPI, US inflation
The Aussie Dollar begins Friday’s Asian session on the right foot against the Greenback after posting gains of 0.33% on Thursday. The AUD/USD advance was sponsored by a United States report showing the economy is growing below estimates while inflation picked up. The pair traded at 0.6518.
EUR/USD mired near 1.0730 after choppy Thursday market session
EUR/USD whipsawed somewhat on Thursday, and the pair is heading into Friday's early session near 1.0730 after a back-and-forth session and complicated US data that vexed rate cut hopes.
Gold soars as US economic woes and inflation fears grip investors
Gold prices advanced modestly during Thursday’s North American session, gaining more than 0.5% following the release of crucial economic data from the United States. GDP figures for the first quarter of 2024 missed estimates, increasing speculation that the US Fed could lower borrowing costs.
Ethereum could remain inside key range as Consensys sues SEC over ETH security status
Ethereum appears to have returned to its consolidating move on Thursday, canceling rally expectations. This comes after Consensys filed a lawsuit against the US SEC and insider sources informing Reuters of the unlikelihood of a spot ETH ETF approval in May.
Bank of Japan expected to keep interest rates on hold after landmark hike
The Bank of Japan is set to leave its short-term rate target unchanged in the range between 0% and 0.1% on Friday, following the conclusion of its two-day monetary policy review meeting for April. The BoJ will announce its decision on Friday at around 3:00 GMT.