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Bearish Trend is still Valid

The EUR/USD exchange rate entered a shortened week due to turbulence, under pressure near its lowest levels in two months and with key technical support levels in sight, but it may get a chance to recover some losses if the inflation figures for the eurozone for the day Thursdays are similar to those issued in the UK last week. The downward trajectory of the EUR/USD pair pushed towards the 1.0701 support near its lowest levels since late March in weak public holiday trades, prompting some observers to think about more losses that are likely to bring it back to the 1.06 support or less in certain conditions later in the week.



Commenting on the performance of the currency pair. “Nonetheless, the euro is clearly leaning towards more softness,” writes Sean Osborne, Scotiabank’s chief forex analyst; Recovery support at 1.0726 is (barely) steady on a daily closing basis, and a clear break below this level will target more losses for the Euro towards the 1.05 support area. Above 1.0760 would bring slight relief from selling pressure.”

Monday’s session’s decline came hard on the heels of official data released in the US last Friday indicating that the US Federal Reserve’s preferred measure of inflation rose in April when expectations were that it would remain unchanged. The data keeps alive the risk of another US rate hike announced later this year and made the prospect of rate cuts less likely for the foreseeable future, thus adding to Friday’s losses for the euro-dollar rate.

On the other hand, but the single European currency – the euro – can benefit if the inflation data released in Europe over the course of Tuesday, Wednesday and Thursday comes very similar to that issued in the United Kingdom last week, as domestically produced inflation accelerated significantly when it was expected to Decline. Accordingly, Joseph Capurso, an analyst at the Commonwealth Bank of Australia, wrote in a research briefing, “We believe the risk lies in a stronger CPI given the strength of the core CPI in the UK.”

The analyst added, “The stronger-than-expected UK CPI sent GBP/USD lower as it raised fears that further interest rate tightening could push the UK into recession. A similar reaction could lead EUR/USD lower towards support 1.0499 (61.8% fibo).

The consensus among economists is that inflation for the Eurozone should fall from 7% to 6.3% for the month of April on Thursday and that core inflation should fall from 5.6% to 5.5%, but UK and US figures suggest that the risk is to the upside. Implicit expectations in the market suggest that investors do indeed expect the European Central Bank (ECB) to raise interest rates on at least two more occasions this year, with the negative deposit rate once raised to 3.75%, but implied expectations could rise if it reacts to last week’s data in the UK has to go by.

Financial markets recently priced in three additional BoE rate hikes following last week’s data, and while this resulted in losses for the British pound, the positive correlation between EUR/USD and bond yields suggests that the EUR could benefit from any such outcome. However, on the other side of the same coin, appetite for the single European currency, the euro, could be undermined if inflation is in line with expectations or lower.

In general, inflation figures are the highlight of the calendar in Europe, but the single European currency is also likely to be vulnerable to dollar fluctuations and developments in the US government bond market during a period also crowded with US economic data. Friday’s non-farm payrolls report is the highlight of the US but the Job Opening and Labor Force Turnover Survey (JOLTS) on Wednesday and the Institute for Supply Management (ISM) Manufacturing PMI survey on Thursday may also influence the dollar and bond markets.

  • According to the performance on the daily chart, the general trend of the EUR/USD currency pair is still bearish.
  • Its losses affected the support at 1.0700.
  • The technical indicators are in strong oversold areas.
  • Both bears and bulls may await anything new that affects the sentiment of investors from the results of the important economic data and the reaction of the US debt agreement to determine the next direction so far.
  • The strongest bears control and the continuation of their momentum may move the currency pair towards deeper support levels, the closest to which they are currently 1.0685 and 1.0590, respectively. This is better than thinking about buying the currency pair without risk.

On the other hand, and for the same period of time, the bulls will not control the direction of the euro against the dollar, without returning to the vicinity of the psychological resistance 1.1000 again.

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