Analysis and Opinion »

Euro Tumbles to 11-month Lows on Weak Sentiment Data

David Becker
Share on StockTwits
Published on
www.iforex.com
Euro Tumbles to 11-month Lows on Weak Sentiment Data

The EURUSD currency pair hit a fresh low of 11-monht low 1.3184, and is poised to test support near the 2013 lows of 1.31. The European Central Bank President Mario Draghi acknowledged at the Jackson Hole conference that the outlooks for growth and inflation have weakened, increasing speculation of broad based ECB asset purchases program later in the year. French President Hollande said last week that the euro remains is in the process of adjustment, and that the ECB is aware that the euro is overvalued. The Ukraine and Russian situation, meanwhile, along with the impact of sanctions and the Eurozone’s disinflation problem, should continue to put downward pressure on the currency pair.

The German August IFO came in much weaker than expected at 106.3 down from 108.0 in the previous month and versus our forecast and median for a reading of 106.8. The current assessment reading dropped to 111.1 from 112.9 and the future expectations reading dropped to 101.7 from 103.4. The overall reading is now at the lowest level in 11 months, highlighting the impact of the tensions with Russia, which have turned into trade war.

The diffusion index, which gives the balance between positive and negative answers dropped to 5.3 from 8.6, which indicates that optimists still outnumber pessimists, but confidence in the retail sector has turned negative for the first time this year, which suggests consumers are holding back despite the ongoing stabilization on the labor market. At the same time, manufacturing sentiment has dropped markedly.

Momentum on the currency pair has turned 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 also moved lower with price action and is printing near 25, which is below the oversold trigger level and could foreshadow a correction.

Share on StockTwits