EUR/USD To Test Yearly Low?
Fiona Cincotta March 17, 2020 1:41 PM
Euro tumbles amid rush to safe haven dollar
EUR/USD has dropped through $1.10 to its lowest level since late February, amid a rush for the safe haven dollar.
Germany is heading for a recession. The situation is fast moving. However yesterday Chancellor Angela Merkel announced a general lock down of Europe’s largest economy. All shops are to be closed, no touristic travel domestically or abroad, restaurants open until 6pm and no sports or cultural events allowed. So, consumption will drop dramatically. Large car manufacturers have also announced a temporary halt to production. The supply shock demand shock will be crippling and the economic impact will be staggering.
And the problem is not just Germany, Italy, Spain and France, the largest economies in the eurozone all face severe pressure from the coronavirus outbreak, as governments lock down countries with already very fragile economies.
Meanwhile US data is also disappointing. Retail sales declined a -0.5% in February, missing expectations of 0.2% increase. These figures show that consumption, the main driver of the US economy had started to slow even before coronavirus social distancing measures were enforced, raising fears that the data out of the coming months will be hideous.
Despite the Fed’s best efforts to ease pressures in the money markets recent signals suggest that the moves haven’t worked. This is most likely a result of lenders hoarding the dollar in expectation of increased liquidity needs from companies and growing concerns over bad loans. The pressure was most explicit in the euro/dollar 3-month FX spread which widened to 124 bps at one point, its widest level since the European debt crisis and up from just 20 bps earlier this month. This means that market player are willing to pay higher premiums for dollars, an amber warning signal flashing.
Levels to Watch
EUR/USD is down over 1.5% at $1.10, it has picked up off session lows of US$1.0974. It trades below its 50, 100 and 200 sma and comfortably below the descending trendline.
Immediate support can be seen at $1.0974 (today’s low) prior to $1.0953 (low 28th Feb) and $1.0880 (low 26th Feb).
Resistance can be seen at $1.1026 (200 sma), $1.1118 (today’s high) and $1.1130 (100 sma). We would be looking for a move above $1.1170 to negate on the current bearish trend on 4 hour chart.
GAIN Capital UK Limited (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.