EUR/USD falls below 1.26 – 4 reasons

EUR/USD is falling heavily, already  100 pips on the day. The weak inflation numbers are in the driver’s seat, but also other forces are coming together to push the pair lower, defying those who estimated that the pair is oversold and that a significant correction is just around the corner. Each support line has held only temporarily so far, but the pair may be approaching the ECB’s “comfort zone” that will provide more growth opportunities and higher inflation via  higher import prices.

Here are 4 reasons for this extended crash:

1. Euro-zone inflation fell to 0.3% and core  inflation to 0.7%. While both levels were already seen in 2014, they were never seen together. These are rock bottom levels for both.
2. The US dollar is dominant across the board for quite a few weeks. From time to time, it takes a break, and then storms again. We are now amid a fresh storm, as also stronger currencies bow before the greenback.
3. German unemployment: Germany reported a rise of 12K in the number of unemployed, worse than expected. If  the locomotive of the euro-zone cannot ride on its won, who can? German employment data has been disappointing for quite some time.
4. End of quarter flows: The end of  a trading week  often sees stronger moves than usual. At the end of the month, this can be even worse. At the end of a very turbulent quarter, the situation further intensifies. These are the last hours of a quarter that saw huge moves.

Where can this stop? The ECB  will probably  feel comfortable when EUR/USD is back to the 1.20 to 1.25 area, where it traded in mid 2012. A lower value against the pound would also help. EUR/GBP is already close to the post crisis low of 0.7750.

The new low is 1.2587, just above support at 1.2587. Further support is at the very round number of 1.25, which is USD/EUR at 0.80. Resistance is at 1.2620 and much stronger resistance is at previous support back at 1.2660.

For more, see the EURUSD forecast.