EUR/USD: Key support exposed ahead of the German IFO data
- EUR/USD is looking south, having printed three-week lows yesterday on the back of broad-based dollar demand.
- Technical studies are biased bearish. Traders may continue to buy US dollars today on growing US-EU economic divergence.
- The pivotal support at 1.1176 may come into play if the German IFO data, due at 08:00 GMT, disappoints markets.
EUR/USD is on the defensive ahead of the German data release, having dropped 0.27 percent on Tuesday.
The shared currency fell to 1.1192 yesterday, the lowest level since April 2, as traders snapped up US dollars, possibly in response to the macro data released last week, which triggered hopes the world’s biggest economy may have fared better-than-expected in the first quarter.
The drop to levels below 1.12, however, was short-lived, seemingly due to the narrowing of yield spreads. The difference between the yields on the 10-year US and German government bond yields fell more than five basis points to 253 basis points in the EUR-positive manner. As a result, the spot closed yesterday at 1.1226.
Despite the pair’s recovery from sub-1.12 levels, technicals remain bearish with the 4-hour chart reporting a bear flag pattern. The 5-, 10- and 20-day moving averages (MAs) are trending south a week after the pair created a bearish lower high along the 50-day MA. The spot, therefore, appears on track to test the pivotal support at 1.1176 (March low).
Further, traders may continue to buy US dollars, courtesy of growing economic divergence between the US and the Eurozone. Also, the common currency may remain on the defensive as polls show Spaniards are undecided less than a week ahead of the general elections (scheduled for Sunday).
The EUR-bearish case may strengthen further if the forward-looking German IFO business climate, expectations and current assessment indices for April miss estimates by a wide margin. The data is due for release at 08:00 GMT.
It is worth noting that business confidence has improved more than expected last month, snapping six straight monthly declines. The business climate in the manufacturing sector, however, had weakened.
That said, the probability of April IFO surveys beating estimates today is high, given the recent signs of recovery in China – one of Germany's biggest trading partners. A big beat may put a bid under the EUR.
Pivot points
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
