Fundamental Euro Forecast: Bearish
- It was only a couple of weeks ago that ECB President Christine Lagarde disappointed the Euro bears when she made no mention of the 1.20 level for EUR/USD as being too high for the central bank given its goal of price stability.
- Nonetheless, rather than climbing back to 1.20 and above, EUR/USD has fallen – and that has weakened the technical position of the pair, suggesting more losses to come.
EUR/USD technical outlook deteriorates
Back on September 10, European Central Bank President Christine Lagarde was widely expected to talk the Euro down when she held her regular press conference following the decision by the central bank’s Governing Council to leave Eurozone interest rates unchanged, as expected.
Instead, she said only that the ECB had discussed the Euro’s appreciation and would monitor the exchange rate carefully. For Euro bulls that was a green light to push EUR/USD back to and above the 1.20 level topped briefly on September 1. Yet, instead, it has dropped back, leaving the pair in a weak state technically and a further fall to the downside more likely than a recovery.
EUR/USD Price Chart, Daily Timeframe (March 6 – September 17, 2020)
Chart by IG (You can click on it for a larger image)
As the chart above shows, the decline in EUR/USD pushed the price below 1.18 last week and below the 50-day moving average for the first time since May 25. If the 20-dma were now to drop below the 50-dma that would weaken the outlook further, especially as the 14-day relative strength index (RSI) is not yet sending out an oversold signal.
( 10:09 GMT )
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Eurozone data to prompt Euro weakness?
As the coming week is a busy one for Eurozone economic data, one possibility is that disappointing numbers will act as a catalyst for a further EUR/USD decline. Two releases in particular could be important: the Eurozone ‘flash’ purchasing managers’ indexes (PMIs) for September, due Wednesday, and the German Ifo business climate index for this month, due the next day.
These are among the first September numbers scheduled so should give a good indication of the strength of the Eurozone economy’s recovery from the coronavirus pandemic. Several other releases will also give an idea of how confident consumers and businesses are in the recovery. The ‘flash’ Eurozone consumer confidence figure for September is due Tuesday, followed by GfK’s measure of German consumer confidence Wednesday and French business confidence Thursday.
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— Written by Martin Essex, Analyst
Feel free to contact me on Twitter @MartinSEssex