EUR/USD: Market complacency allows for a test of the 23.6% Fibo retracement, bulls now through 1.13 the figure

'Market is what market does', to coin the famous Forest Gump quote, "Stupid is what stupid does".

This is a classic, 'don't trade what you think, but trade what you see' trading rule. We have data that is recessionary type data coming out of all corners of the world and trade dispute updates that are almost laughable, yet the markets are rallying and risk-on sentiment is supporting a bid in the euro. 

EUR/USD is now testing through the 23.6% Fibo retarcement of the late Jan decline to recent lows on nothing more than pure speculation built on hope. Hope that the Fed will cut rates in December and that the US and China will magic up a trade deal this week, before the 1 March cut-off, when officials arrive in Washinton, to potentially sign an MoU. 

"The Chinese media put a very positive spin on it," analysts at Rabobank noted, "US President Trump is not the only one who can try to frame an outcome like that-- and we are going to see negotiations continue in the US this week as both sides apparently press ahead towards signing a “Memorandum of Understanding”. But an MoU is nothing. It’s not a trade deal, and to think China would take one seriously when it doesn’t stick to things like WTO commitments in US eyes is laughable."

Global data disappointment, but markets stay complacent 

Meanwhile, we have seen terrible US retail sales data, IP numbers that are the equivalent to 2009 from both the Chinese and US, and the recent string of both hard and soft data in the EZ has been nothing short from horrible - Eurozone industrial production growth was at -4.2% y/y in December and retail sales at a paltry 0.8% y/y. A monthly decline of 0.9% in December leaves production in the monetary union 4.2% below that of last year. The most forward-looking indicators are not even pointing at any significant recovery in growth in Q1.

Indeed, the fundamentals are stacked against a full-on recovery in the euro and risk but the dollar is also going to struggle if markets keep buying the mantra of Fed rate cuts. However, once the knee-jerk reaction is taken out from such comments as SF Fed Daly who told the WSJ that if the economy evolves as she expects, with 2% GDP growth and 1.9% inflation, then the case for another rate rise “isn’t there,” then the dollar can take flight on pure flow once again, considering its actual place in commodities and financial markets.   

EUR/USD levels

EUR/USD has broken the 23.6% Fibo of the late Jan highs to recent swing lows. Meanwhile, Valeria Bednarik, Chief Analyst at FXStreet explained that the daily chart shows that the bearish trend is firmly in place:

 "The price is below all of its moving averages which maintain strong downward slopes, while the Momentum indicator heads lower in negative levels and at its lowest for this year, and the RSI lacks directional strength, consolidating around 41."