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Euro Hits Fresh 3-year Low as Sentiment Continues to Erode

David Becker
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Euro Hits Fresh 3-year Low as Sentiment Continues to Erode

The EURUSD hit a fresh 3-year low, as sentiment in the Eurozone continues to erode. Momentum on the currency pair is negative, despite slightly higher than expected inflation numbers report in Germany on Monday. US, yields are rising pushing the yield differential in favor of the greenback, which should continue to generate headwinds for the European currency.

Eurozone ESI economic confidence fell to 99.9 in September from 100.6 in the previous month. The decline in sentiment was in line with expectations and reflects the weaker PMI and IFO readings, adding to negative confidence data in September. Negative sentiment will likely keep the ECB in the spotlight with a full-blown QE likely in the cards.

German state HICP inflation numbers were slightly higher than expected, with headline rates remaining unchanged in Brandenburg, NRW and Bavaria, but ticking slightly higher in Saxony and Hesse. Spanish HICP increased to -0.3% year over year from -0.5% year over year this means the Eurozone rate could come in slightly higher than initially expected, which would add to the arguments of the hawks at the ECB and to the arguments against further moves from the central bank this week. Lingering hopes that the ECB will be forced to move to broad based asset purchases eventually remain, but that will depend on data releases, geo-political developments and the impact of the ECB’s latest round of easing measures, with the second TLTRO in December in focus.

The EURUSD traded at a lower low for the down move, and is poised to test weekly support near 1.2550. Resistance is seen near the 10-day moving average at 1.2810. Momentum has turned negative with the MACD (moving average convergence divergence) index generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The RSI is printing a reading of 24, which is below the oversold trigger level and could foreshadow a correction.

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