Euro (EUR/USD) Talking Points:
- EUR/USD closes in on 5-month lows
- Eurozone rates are now expected to fall before those in the US
- For as long as that’s the case, the Euro is going to struggle
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The Euro was just a little weaker against the United States Dollar on Monday, with the pace of its fall slowing. That may not be the case for long, however. Monetary policy differentials remain strongly in the greenback’s favor, leaving the Euro on the ropes.
The lack of serious escalation in tensions between Israel and Iran has seen risk appetite perk up a little, sending the Dollar broadly if only marginally lower. The Euro has benefitted from this, but Middle-Eastern geopolitics remain extremely fluid and this is not reliable respite.
More broadly, the Euro continues to suffer from the clear chance that the European Central Bank will be cutting interest rates in June, on present showing long before the Federal Reserve follows it down that path. US inflation has clearly been more resilient than anyone expected at the start of this year, with stronger overall economic growth also arguing the Dollar’s case against the single currency.
This week’s major scheduled trading point is likely to come from the USD side of things. Inflation data from the Personal Consumption and Expenditure series are due on Friday. This is known to be the Fed’s preferred pricing gauge, so it has naturally become the markets’ too.
March core inflation is expected to have relaxed to 2.6% from 2.8%. Any upside surprise would be a serious problem for Euro bulls.
There are some important European data releases before this one, notably Germany’s Purchasing Managers Index and the Ifo business climate snapshot. However, moves on these are likely to be limited by the wait for PCE.
EUR/USD Technical Analysis
The Euro has plummeted far below its medium-term downtrend line, 200-day moving average and its previous trading band and now languishes close to five-month lows.
The key question now is whether the narrower trading ranges seen in recent days amount to signs of a bullish fightback or mere respite for an oversold market on the road lower. While the latter must be more likely, the fate of two important retracement levels will probably be good near-term signposts.
EUR/USD Daily Chart Compiled Using TradingView
Current falls have notably stopped just before the 1.05950 level which marks the firth Fibonacci retracement of the rise to December’s highs from the lows of early October. Bears will need to force the pace below this level if they are to negate the entire rise.
To the upside lies the fourth retracement at 1,07101. This gave way during April 12’s sharp falls and has not come close to being reclaimed since. Just ahead of that, bulls would need to retake February 14’s intraday low of 1.06962 if they are going to power back above that level.
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