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EURUSD One More Yearly Low in the Books
Posted On 11 Aug 2014
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This is becoming a slightly repetitive topic but last week, the EURUSD recorded another yearly low (1.3332). Downside pressure resumed after investors reacted unfavorably to Wednesday’s news that German Factory Orders unexpectedly declined, alongside Italy falling back into recession. In regards to Italy, Gross Domestic Product contracted by 0.2% in the second quarter of 2014. This followed the 0.1% economic contraction in Q1.
The other major headlines from the EU was that as expected, the European Central Bank (ECB) left monetary policy unchanged. In reference towards notable comments from Mario Draghi’s press conference, the ECB President expressed that the EU recovery remained “weak, fragile and uneven”. Additionally, Draghi proclaimed that the “fundamentals for a weaker exchange rate are better now than a few months ago”. This could be seen as a clear signal that the bear run, which the EURUSD has been on since the 1st week of May (near 700 pip decline) could be far from over.
Next week, the major economic releases to keep an eye out for are likely to be the latest German ZEW Survey (Tuesday), German Inflation (Wednesday), EU GDP (Thursday) and EU Inflation (Thursday).
Although at first sight, the EU GDP and EU Inflation release appear higher risk, the ECB are prepared to offer time to recently implemented stimulus before deciding on the possibility of further action. Therefore, patience may be awarded to these releases, in the event that they raise a few eyebrows. My personal pick to watch out for is the German ZEW Survey. Reason being, is that the German economy has been impacted by the geo-political conflict in Eastern Europe and bearing in mind that Germany is the majority contributor to the EU GDP, downside risks to the EURUSD will be likely if the ZEW survey disappoints.
In regards to the technicals on the Daily timeframe, a bearish channel remains in control of the overall EURUSD direction. Any upside moves will find resistance located at 1.3452 and 1.3506. Support can be found at 1.3332 (yearly low) and if we do encounter heavy selling, 1.3295. A move to the latter would represent the lowest EURUSD valuation since 6th November 2013.
