At the end of Monday’s London session EURUSD came back with a bang, breaking out of its near-term range and triggering stops in the process. However, now that the dust had settled the EURUSD does not seem to have done enough to restore the prior uptrend and we continue to think that the downside risks to this pair outweigh the chances of a deeper recovery.
We wrote about the EURUSD yesterday HERE and said that the fundamental risks remain relatively EUR negative, while the technical picture looks neutral for now. There have been a couple of new developments on the fundamental front, which we believe add to the downside case for the EUR including:
1, Germany’s ECB member Jens Weidmann sounded concerned about EUR strength in a speech earlier and suggested some radical action could be taken to limit EUR upside including negative interest rates for deposits held with the ECB, he also said that QE is not “generally out of the questionâ€. When traditional hawks like Weidmann start talking about negative rates and QE it is worth taking notice, as it could suggest further dovish action from the ECB in the coming months. Overall, Weidmann’s comments make next week’s ECB meeting interesting and could trigger some weakness in the single currency as we lead up to Draghi’s next press conference on 3 rd April.
2, The German IFO was weaker than expected, which suggests that the German economy could be cooling as we end the first quarter.
The technical view:
Although EURUSD broke out of its most recent range, it did not do enough damage to refresh bullish potential in our view. We continue to look for a close below 1.3780 – the 38.2% Fib retracement of the February – March advance, as a bearish development. Below this level opens the way to 1.3664 – the 61.8% Fib retracement level of the same Feb – March advance.
On the upside, a daily closed above 1.3876 – the 24 th March high – would negate our negative view on EURUSD and could open the way to 1.3967. March 13 th highs. To get a deeper technical view of EURUSD see more of my colleague Chris Tevere’s work HERE.
Figure 1:
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