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The Euro is on the ropes

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The Euro is on the ropes

The Euro lost ground again the greenback on Tuesday, moving lower and testing short term support as momentum is pointing to lower prices.  Tuesday German business survey was stronger than expected but this did not deter US dollar traders from selling the Euro as investors consolidate positions during the dog days of August.

On Tuesday a German business center released their ZEW survey which came in stronger than expected.  The current activity measure climbed to 18.3 from 10.6, which surprised market participants.  The reading was the strongest since last August and contrasts with the consensus estimate of 12.  The future expectations sub-component rose to 42 from 36.0.  This is the highest since the end of the first quarter of 2013.

The positive news was unable to offset the negative effect of the euro zone June industrial production report.  IP increased by 0.7% rather than the 0.8% consensus.  Interest rate differentials continue to favor Germany, but just barely, as the US-German 2-year differential are near 12 basis points, its lowest level since late June.

The EURUSD exchanged rate moved lower testing the 10-day moving average near 1.3250.  A close below this level would likely lead to a test of support near the 100-day moving average at 1.31.  Resistance is seen near the August and June highs at 1.34.

Momentum has turned negative on the currency pair with the MACD (moving average convergence divergence) index generating 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.  Index has moved from a positive reading to a negative reading confirming the sell signal.  The RSI (relative strength index) broke lower with price action, confirming the acceleration of negative price action.

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