|

EUR/USD: The downfall is in the data – one chart shows more falls may come

  • EUR/USD has been falling persistently, hitting the lowest in two years.
  • Economic data – and disappointments – explain the move.
  • FXStreet's Surprise Index chart shows an unfavorable future for the currency pair.

It is often hard to see the forest from the trees – especially in the age of constant Twitter updates, breaking news headlines, and a continuous inflow of economic data.

Why is EUR/USD falling? Politics are messy in both the US and Europe, both the Federal Reserve and the European Central Bank are easing monetary policy, and data has disappointed on both sides of the Atlantic. Negative results in all major economies explain central banks' dovishness.

But there is a difference between weak US economic figures and euro-zone ones – and especially in surprises comparing to expectations. That is where FXStreet's Surprise Index comes into play.

EUR USD FXStreet surprise index October 2019

The blue line represents surprises in euro area data and the red one surprises in US figures. The chart shows that both are on a downward trajectory – triggering easing from central banks. 

However, while the downtrend in European figures is maintained, there are tentative signs of a turnaround in American statistics. The FXStreet Surprise Index for US data has broken above the one for European figures. 

The divergence of these indexes – while unaccompanied by central bank divergence – implies that EUR/USD still has more room to the downside. 

How low can it go? The next technical levels to the downside are 1.0820, 1.0780, 1.0720, and 1.0650. Far below, the multi-decade low of 1.0340 is still far. 

About the FXStreet Surprise Index

The indicator helps separate news from noise. 

FXStreet Surprise Index quantifies, in terms of standard deviations of data surprises (original releases vs. survey median), the extent to which economic indicators exceed or fall short of consensus estimates.  

Economic reports with better- or worse-than-expected news are assigned a positive or negative deviation value, while reports meeting expectations get a 0 deviation value. Adding up the values of the deviations, and you get an initial series showing how economic data are progressing relative to the consensus forecasts of market economists. The deviation formula employs a ratio function to replicate behavioral anchors of market participants.

Preserving the properties of these underlying series, the index finally shows the detrended momentum of the surprises in relation to previous weeks. 

Surprise Indexes are constructed for the United States, Euro Area, Germany, United Kingdom, Canada, Japan, Australia and New Zealand.

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold looks vacillating above $4,150

Gold alternates gains with losses below the key $4,200 mark per troy ounce on Friday. The yellow metal’s irresolute price action comes in response to a modest pullback in the US Dollar and a tepid recovery in US Treasury yields across the board.

Bitcoin steadies at $82,000: The five forces crushing the Uptober rally

Crypto markets have remained under pressure so far in October, with Bitcoin (BTC) sliding below $80,000 earlier this week before recovering to around $82,000 on Friday, as macroeconomic headwinds and cooling demand weigh on the market.

The Fed just got a second hot inflation number. Here's what the diesel signal is really saying
The Federal Reserve (Fed) faces a renewed inflation challenge after two consecutive reports showed price pressure intensifying across the US economy. September's Consumer Price Index (CPI) confirmed accelerating consumer inflation, while the Producer Price Index (PPI) revealed an even sharper rise in business costs. Behind both reports lies a common factor: energy prices.
Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff
Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.