Is it too soon for a EUR/USD rebound?
Tony Sycamore March 25, 2021 5:28 AM
A central development in stock markets during the first quarter of 2021 has been a rotation out of high growth/tech-heavy indices into stock indices with a high percentage of cyclical stocks that are beneficiaries of higher bond yields.
A global example of this is the German Stock index, the DAX, up over 6% year to date compared to the tech-heavy NASDAQ index, trading flat for the year.
In a simplified world, this may lead to an expectation of support for the EUR/USD as investors need to purchase the Euro currency to allow them to buy into European stock indices, such as the DAX and the CAC.
Despite this and the overnight release of Eurozone flash PMI’s, which showed manufacturing rising to its highest level on record at 62.4 as well as the German Government walking back expectations of a five-day lockdown over Easter, the EUR/USD closed at its lowest level since November 2020.
Concerns remain over the slow vaccine roll out in Europe and a possible extension of lockdowns that delay the reopening. In contrast to the situation in the U.S of an ongoing reopening, stimulus checks and prospects of a large infrastructure package to keep the recovery on track.
Nonetheless, this isn’t a new story and it has been the driver of the EUR/USD’s decline during March. The question is how much more needs to be priced in?
After breaking below the early March 1.1835 low this week, the EUR/USD is testing trend channel support currently around 1.1800ish. Interestingly, bullish divergence can be viewed via the RSI indicator that indicates a loss of momentum to the downside. Tentative reasons to look for a bounce, more so if the EURUSD could reclaim on a closing basis the 200day ma at 1.1855.
However, should the EURUSD fail to establish a base near current levels, and then slips through support at 1.1800/80, allow for a deeper pullback towards medium-term support at 1.1600.
Source Tradingview. The figures stated areas of the 25th of March 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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.