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Euro Tumbles Following Weak Zew, Traders Eye US Retail Sales

David Becker
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Euro Tumbles Following Weak Zew, Traders Eye US Retail Sales

EUR/USD tumbled to a new one-month low of 1.3712 breaking through trend line support following a Bundesbank report that said would endorse new ECB stimulus measures in June. This in turned followed a much weaker than forecast German ZEW confidence reading, which pushed interest rates lower and allowed the dollar to gain traction.

The German ZEW investor confidence index dropped to 33.1 from 43.2 in the previous month. Expectations had been for a decline in the headline reading, but the number was much weaker than the median of 40.0, and raises the odds for ECB action in June. With ESI economic confidence as well as ZEW investor confidence coming off, the risks to the growth outlook seem to be increasing. With bund yields declining relative to US yields, the dollar is becoming a more attractive investment.

Reports from the WSJ say that the Bundesbank is prepared to back a number of stimulus measures at the June meeting, including a negative deposit rate as well as purchases of packaged bank loans if needed to prevent inflation from staying too low.

The EURUSD sliced through trend line support, and is poised to test horizontal trend line resistance near 1.3670. Resistance on the currency pair is seen near the 10-day moving average near 1.3838. Momentum on the currency pair is negative as the MACD (moving average convergence divergence) index generated 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 (relative strength index), which is an oscillator that measures momentum along with overbought and oversold levels is printing a reading of 36, which is still above the oversold trigger level of 30, and is at the lower end of the neutral range.

Up next is the US retail sales report, which could generate further liquidation on a stronger than expected number. The median forecast is for a 0.6% month over month reading.

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