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Euro Poised to Test Lower Levels a Yields Tumble to 2014 Lows

David Becker
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Euro Poised to Test Lower Levels a Yields Tumble to 2014 Lows

EURUSD is trading at fresh eight-month lows, hitting 1.3410. Target support is the November lows of 1.3296 which could be hit as yields in Europe continue to tumble. Resistance on the currency pair is seen near the 10-day moving average at 1.3475. The yield differential between Germany and the US continues to favor the greenback which is a sign that the currency pair has further to fall.

The German 10-year yield fell to a low of 1.119% Tuesday, below the previous low of 1.127% seen in June 2012, as worries about Eurozone contagion amid the Greek debt crisis boosted safe haven flows. This time around, Eurozone peripheral yields are also coming off and it is not so much risk aversion, but the ECB’s generous liquidity provision and mixed economic data that are suppressing yields.

German June import price inflation rose to a negative -1.2% year over year from -2.1% year over year in the previous month, with prices up 0.2% month over month. The marked rise in the annual rate was mainly due to a lesser impact of base effects from oil prices and import price inflation excluding petroleum nudged only marginally higher to 0.0% year over year from -0.1% year over year in the previous month. Still data should help to ease lingering deflation concerns while highlighting that there are no pipe-line price pressures at the moment, all of which supports the ECB’s wait and see stance, especially as the main part of the last easing package is still to be implemented.

chart-euro-poised-test-lower-levels-yields-tumble-2014-lows.png

Momentum on the currency pair remains negative with the MACD (moving average convergence divergence) index printing in negative territory with a downward sloping trajectory. The RSI has moved lower with price action and is printing at 28 below the oversold trigger level of 30 and could foreshadow a correction.

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