Euro Hits 5-year Low as Inflation Pressure Ease

The EUR/USD moved lower leading a fresh dollar rally, which saw the currency pair tumble below 1.20 and test the June 2010 lows at 1.1875. The dollar rallied against the yen the Aussie and pound and also rallied to a fresh trend peak above 1.1800 against the Canadian dollar as oil prices sank to a new five-year lows. A sharp drop in preliminary German state inflation data for December, which is similar to the picture painted by the preliminary Spanish data last week, kept the pressure on the euro as this fits the prevailing market narrative of the ECB announcing a QE program on Jan-22.

German December inflation set to decline more than expected, with annual rates in German states down between 0.2% points in Saxony and 0.6% points NRW. The first state numbers are already heading south again. The German government hasn’t changed its policy on Greece, according to government spokesman Seibert, who said Germany has worked to stabilize and strengthen the Eurozone, with all of its members, including Greece.

Sentiment in Europe on the other hand is positive, as Eurozone Sentix Investor Confidence starts strong in 2015. The January reading climbed to 0.9 from -2.5 in December. This means optimists outnumber pessimists for the first time since August last year. The breakdown showed the expectations index rising to 13.5 from 12.0 while the reading for the current situation improved to -11.0 from -16.0. The data tie in with the stronger than expected ZEW readings at the end of last year and support the Bundesbank’s view that the German recovery remains intact, despite the slowdown last year.

The weekly EUR/USD sliced through support near 1.20, and hit monthly support at 1.1875, the next level of target support is the monthly lows seen in 2006 at 1.1650. Resistance on the EUR/USD is seen near the 10-week moving average at 1.2280. Weekly momentum has turned negative as the MACD (moving average convergence divergence) index has recently generated a sell signal. The only caveat has been the decline in the RSI to oversold levels. The currently weekly reading of 23, is well below the 30 trigger level and could foreshadow a correction.

The post Euro Hits 5-year Low as Inflation Pressure Ease appeared first on Forex Circles.

Source:: Euro Hits 5-year Low as Inflation Pressure Ease