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Euro Holds Steady Despite Declining Sentiment

David Becker
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www.iforex.com
Euro Holds Steady Despite Declining Sentiment

The EURUSD edged higher as the European bank stress test results were in line with expectations, showing that 25 banks failed the stress tests, but only a very small number still has to raise funds. Sentiment in Europe is still declining by a gauge of inflation picked up helping the currency pair to gain traction.

Eurozone September M3 growth accelerated to 2.5% year over year from 2.1% year over year in the August. The three months trend rate rose to 2.1% from 1.8% and private sector credit growth turned moved higher to -1.2% year over year, versus -1.5% year over year in August. The change in money velocity, which is a measurement of inflation expectation is good news and will take some pressure off the European Central Bank to add to their current stimulus pack before the present measures have been fully implemented.

The German Oct IFO dropped to 103.2 from 104.7 in September. This reading is the weakest print since the end of 2012 and the diffusion index fell back into negative territory. Construction and retail confidence also turned more negative and only the wholesale trade sector was slightly less pessimistic about the outlook. The expectations reading fell for the sixth consecutive month, and this will add to concerns that the German recovery is being negatively affected by Russian sanctions.

The technical picture shows that the currency pair is consolidating at the bottom of a range, holding support near a short-term upward trend line near 1.2620. Resistance is seen near the 10-day moving average at 1.2715. Momentum is flat with the MACD printing just above the zero index mark with a positive trajectory, while the RSI (relative strength index) is printing near 45, which reflects consolidation.

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