EUR/USD settles in near recent lows, potentially poised for breakdown

<p>After dropping sharply for the past two weeks, EUR/USD has tentatively settled in on Thursday just off Wednesday’s new three-week low under 1.1000. During the […]</p>

After dropping sharply for the past two weeks, EUR/USD has tentatively settled in on Thursday just off Wednesday’s new three-week low under 1.1000. During the course of this precipitous drop, the currency pair broke down below previous major support at the 1.1100 level and has fallen to consolidate around a convergence of its 50-day and 200-day moving averages. It has also closely approached to the downside a key uptrend support line within a parallel trend channel extending back to early December’s low near 1.0500.

The euro has been pressured recently due to several different factors, including the increasing possibility that the European Central Bank (ECB) will soon act to implement additional monetary easing measures. ECB President Mario Draghi recently made comments indicating a strong willingness and readiness to do so. Scheduled early next month is the eagerly awaited ECB Press Conference, which should provide clearer guidance as to what those easing measures may entail. Also pressuring the euro has been the increased threat of deterioration in the European Union, most notably by an upcoming referendum in the UK to vote on whether or not it stays in the EU. A UK exit, or “Brexit,” could not only cause potential damage to the UK and sterling, but also to the remaining members of the EU and the euro.

On the US dollar side of the EUR/USD currency pair, extreme doubt earlier in the month with regard to another Federal Reserve rate hike has been mitigated somewhat by relatively benign domestic economic data as of late. Scheduled for late next week are the US Non-Farm Employment Change, Average Hourly Earnings, and Unemployment Rate data for the month of February. As the US employment situation is one of the primary economic indicators taken into consideration by the Fed in setting monetary policy, these data points are typically crucial in reinforcing or changing interest rate expectations as well as the short-term fate of the dollar.

With significant negative factors weighing on the euro, and the still-conceivable possibility of further Fed tightening providing some support for the dollar, EUR/USD could continue its recent downward trajectory to align with its long-term bearish trend.

From a technical perspective, as long as EUR/USD continues to trade below the noted 1.1100 level, which has now become resistance, the stage could be set for a breakdown below the current parallel uptrend channel. In the event of such a breakdown, the next major target is at the 1.0800 support level, followed further to the downside by the key 1.0500 support objective.

EUR/USD Daily Chart


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.