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The Euro has been hit by the Italian earthquake and by weak Retail Sales, and seems lost. Which direction will it take? I see a gloomy picture.

EUR/USD Mobile Price Alert began the week with a neat weekend gap of nearly 100 pips. The new forex trading week sent EUR/USD above 1.35, and almost at 1.36. But this didn’t last for a long time.

The earthquake in Italy wasn’t good for the Euro. EUR/USD began declining. Later during the day, European Retail showed a fall of 0.6%, double the early expectations of a fall of 0.3%.  

Image Credit: Sunrise Seven.

Also negative PPI (-0.5%) weighed on the Euro. Although this figure was expected, the previous figure was revised downwards from -0.8% to -1.1%.  

So, deflation is becoming a real threat in Europe. Jean-Claude Trichet has no choice but lower interest rates lower. These figures may push him to move lower than the anticipated 0.25% to 1%. May’s rate decision may be more than a complementary step to April cut. It may go deeper, maybe to 0.75%.

All in all, the dollar is losing ground around the world – optimism of fast recovery lowers fears and sends traders to higher yielding currencies. But the Euro doesn’t enjoy it. It has it’s own problems.

Currently, EUR/USD is trading at 1.3364 and looks confused. It’s still looking for a direction. I believe that the direction will be down.