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Euro Breaks Through Support; Negative Momentum Accelerates

David Becker
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Euro Breaks Through Support; Negative Momentum Accelerates

The EURUSD notched up an 11-month low of 1.3285 after breaching 1.3300 and last November’s 1.3295 low. The dollar is buoyed following stronger than expected U.S. housing starts data on Tuesday, which seemed to trump soft inflation data. On Wednesday, the markets await the FOMC minutes from the late July meeting, which may show the hawkish voices at the Fed strengthening a little.

French President Hollande Wednesday said that the EURUSD level remains is in the process of being adjusted, and that the ECB is aware that the euro is overvalued, while Eurozone construction output dropped 0.7% month over month in June after already falling 1.4% month over month in May.

The Ukraine situation, meanwhile, along with the impact of sanctions against Russian on the Eurozone economy and the Eurozone’s disinflation problem, should collectively maintain EUR/USD’s bearish bias, even if the is Fed taking its time to an eventual policy tightening.

Eurozone construction output dropped 0.7% month over month in June, after already falling 1.4% month over month in May. Both building and civil engineering declined for a second consecutive month and the annual rate deteriorated and fell into negative territory at -2.3% year over year, after still rising 4.4% year over year in May. With preliminary estimates, for Q2 GDP already released the numbers add mainly background data, but suggest that the weakness in the construction sector was one of the reasons behind the disappointing overall growth number.

The EURUSD broke through support and is now targeting the September 2013 lows at 1.31. Resistance is now former support at 1.3295. Momentum 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 has also moved lower with price action reflecting accelerating negative momentum, but it is printing a reading of 29, which is below the oversold trigger level of 30 and could foreshadow a correction.

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