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Euro Breaks Through Support; RSI is Oversold

David Becker
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Euro Breaks Through Support; RSI is Oversold

The EURUSD sliced through support moving swiftly below the 2013 lows on route to a 22-month low at 1.2697. Euro crosses also moved lower with the EURGBP hitting a crashed to a two-year low. The ECB Draghi’s statement that the “risk of doing too little outweigh risks for doing too much” speech continued to resonate in markets following a weak set of confidence surveys out of the Eurozone. Firmer than expected Eurozone M3 money supply Thursday data helped the euro find a footing, though the rebound has been muted.

The ECB unanimously supports use of unconventional measures if needed, according to Draghi. Nothing new, but after Draghi Wednesday said the risk of doing too little is higher than the risk of doing not enough and once again highlighted the increased downside risks to the outlook, the comments will keep speculation of a move to broad based asset purchases alive.

Eurozone M3 money supply growth accelerated to 2.0% year over year from 1.8% year over year in the previous month. Stronger than expected numbers that together with the weaker EUR will take some pressure on the ECB to move towards broad based asset purchases. Lending continues to contract, however, although the annual rate improved somewhat to -1.5% year over year from -1.6% year over year in the previous month, with the annual rate of loans to non-financial corporations rising to -2.2% year over year from -2.4% year over year and monthly flows improving markedly to -1 from -14.

The technical picture continues to point to lower prices for the exchange rate. Breaking through the 1.27 will likely take time with the next level of target support near the 1.2050 level. Momentum remains negative with the MACD (moving average convergence divergence) index printing in negative territory with a downward sloping trajectory. The RSI (relative strength index) moved lower with price action reflecting accelerating negative momentum while printing a reading of 19, which is well below the oversold trigger level and could foreshadow a correction.

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