- Accelerating on Friday due to German data underwhelming to start with, EUR/USD was sold off further in NY and to below the 50-D SMA, snapping the 11-day advance that started on 14th August down at 1.13 the figure.
- The 20 DMA has lost its bullish strength and turned flat around the 50% retracement of the same rally in the 1.1510 region.
- Shorter term, and according to the 4 hours chart, the pair is also poised to extend its decline.
The sell-off came on risk-off positioning due to the Argentinean and Turkey crisis, (EM noise that kicks in on Wednesday last week), and concerns over contagion, before focus turned back to trade risks on Friday. Also bearish for the euro, eyes are on the DE-IT spread due to uncertainties in the region due to the Italian budgetary concerns.
The pair has based at a key technical level where there is silence in early Asia and some traders taking profits and now sitting on the sidelines waiting for the next cue trying to determine whether this is indeed a reversal underway or just a snapback within a strong daily bull trend, albeit a correction that has been driven on soundly bearish fundamentals for the euro.
The week ahead where traders will look for cues
Analysts at ING Bank explain the week’s risks for EUR/USD:
“In the eurozone, the expected rise in eurozone July retail sales due Wednesday and German July industrial production due Friday should be mildly positive for the euro pointing to a good start for the economy going into the third quarter (following the disappointing data in the last few months). Yet, the main driver for the EUR/USD is likely to be the US rhetoric on trade. The risk of a more meaningful escalation of trade wars and more negative headline news (particularly as the US public consultation period on the effect of Chinese tariffs ends on Thursday) points to some downside risks to EUR/USD next week.”
EUR/USD levels
Valeria Bednarik, chief analyst at FXStreet explained that from a technical perspective, the risk of additional declines has increased:
“In the daily chart, technical indicators have continued retreating from overbought levels, with the RSI indicator nearing its mid-line with a strong downward slope. In the same chart, the pair settled below a bearish 100 DMA, also below the 23.6% retracement of the bullish run from the yearly low of 1.1300 to the high of 1.1733 posted this past week, at around 1.1625. The 20 DMA has lost its bullish strength and turned flat around the 50% retracement of the same rally in the 1.1510 region. Shorter term, and according to the 4 hours chart, the pair is also poised to extend its decline, as it broke below its 20 SMA, which now gains downward strength well above the current level, while the Momentum indicator heads south within negative territory and the RSI indicator stands around 36. Friday’s low was set at 1.1584, and slides below the level should open doors for additional declines toward 1.1500/10.”
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