Search ForexCrunch

EUR/USD is falling around 70 pips from previous steady trading, and is now clearly below uptrend support that accompanied it since early February.

Worries about a further deterioration in the Ukraine and China’s U-turn on currency appreciation contribute to the move.

EUR/USD flirted with the daily uptrend support line and on even slipped below the line on the hourly chart. However, this is the first time we see a clear loss on the daily chart:

EURUSD February 26 2014 Ukraine crisis sends currency pair below uptrend support

The 1.3773 line clearly capped the pair for long days, and the failure to break above the line sent the pair down. On the way, 1.37 support was lost. The lowest level recorded so far is 1.3656, just above 1.3650, which is important support.

Another technical look:  Limited Upside For EURUSD due to Bullish Pattern On German Bunds

Ukraine

The opposition took power in Kiev and in the west of the Ukraine but is far from controlling the east and especially the Crimea peninsula. The ousted president is reportedly over there, and so are the Russians, which are reportedly amassing troops that are ready to intervene.

German chancellor Angela Merkel and Russian president Vladimir Putin agreed that the Ukrainian sovereignty must remain whole. This phrase can have different meanings. for the West, this means that the new government will be allowed to rule and for Russia, the new government is illegitimate.

Apart from the power struggle, the events have also economic consequences: the country has outstanding debt and is shut out of bond markets. And, some of this debt is priced in foreign currency. The local Ukrainian currency is in a free fall, making these obligations much harder to meet, especially as the foreign reserves are running low.

China

The world’s No. 2 economy changed course on the appreciation of its yuan. After a long time of a steady rise, the Chinese authorities allowed its currency to weaken. This is seen as a negative sign for the re-balancing of the global economy and especially for Germany: with a weaker yuan, China can buy less German goods, especially those related to investments.

The Chinese story contributes to general risk aversion and the impact on the euro is more indirect. Ukraine is on the border of the European Union and the euro-zone.

Further reading: EUR/dollar forecast.

Tomorrow Germany releases its initial inflation numbers for February, which are critical to the ECB decision.