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Euro Tests Support; Poised to Fall Further

David Becker
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Euro Tests Support; Poised to Fall Further

EUR/USD found support this morning near 1.3520 and seems poised to test the 1.3503 low seen after the June ECB meeting on 6/5/2014. Yield differentials have moved in favor of the greenback following the dual Humphrey Hawkins testimonies from Fed Chair Janet Yellen. Pressure on the Euro is coming from EURJPY has also been heavy today, making a five-month low at 137.33

Eurozone June HICP inflation was confirmed at 0.5% year over year, as expected, with prices up 0.1% month over month. Core inflation was confirmed at 0.8% year over year. The headline rate was unchanged from May, while core inflation nudged slightly higher from 0.7% year over year in the previous month. A drop in energy price inflation helped to keep the headline rate steady, but even if core inflation is above the overall number, there is no denial that inflation remains considerably below the ECB’s upper limit for price stability of 2%. After the ECB just announced another package of easing measures, which will be implemented over a long period, the central bank now seems to be firmly in wait and see mode, something that council member Hansson indicated this morning as well.

Governing Council member Hansson said the ECB asset purchases are “worth preparing” as its “worth having more tools”, but added that he doesn’t think “quantitative easing is a tool that is needed right now”. The ECB is in wait and see mode, but the longer they wait for the economy to gain momentum the harder it will be to implement an asset purchase program that will boost economic growth.

The EURUSD currency pair was able to hold trend line support near 1.3520. A break would lead to a test of the February lows at 1.3450. Momentum is negative with the MACD (moving average convergence divergence) printing in negative territory with a downward sloping trajectory.

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