Euro: USD/EUR (EUR=X) technical outlook conflicted ahead of key data

Euro: USD/EUR (EUR=X) technical outlook conflicted ahead of key data

Euro: USD/EUR (EUR=X) technical outlook conflicted ahead of key data

The Euro ceded ground to the Dollar and underperformed many major rivals last week although the charts suggest a further sell-off cannot be ruled out for the days ahead, which will also see the single currency tested by European Central Bank (ECB) rhetoric and IHS Markit PMI surveys.

Europe’s single currency closed 0.26% lower against the Dollar for the week on Friday, with the Euro-to-Dollar rate influenced to the downside at the last minute as U.S.-EU trade tensions landed back on the market’s radar. But the Euro had already come under pressure from strong U.S. retail sales that prompted investors to reappraise the short-term outlook for the world’s largest economy.

The exchange rate has failed to retain the upward momentum it had heading into year end and has now carved out a series of lower highs, and lower-lows on the charts. This has left it at risk of drifting lower still this week, although economic data will have the final word on the trajectory of the currency.

Any hawkish rhetoric from the ECB or upside surprises in Friday’s PMI surveys might be enough to save the single currency from further declines. 

The Euro: What to Watch

The Euro ceded ground to most major rivals last week amid an improvement in investor appetite for riskier assets and as U.S.-EU trade tensions appeared back on the market’s radar, although economic data and the European Central Bank will drive price action in the single currency this week. 

Thursday at 12:45 will mark the release of the latest ECB interest rate decision and although all of the bank’s interest rates and various policy initiatives are expected to go unchanged, markets will still scrutinise details of the statement and press conference closely for clues on the outlook. 

“ A lot of attention will be given to the ECB meeting with Christine Lagarde laying out the details of the policy framework review. However, while we see this as an important theme for the markets this year, we probably won’t get enough clarity next week to drive the markets. Some increased optimism though from the ECB given improved data may help support the euro,” says Derek Halpenny,  head of research, global markets EMEA and international securities at MUFG.

Former International Monetary Fund chief Christine Lagarde now heads the ECB and has made a strategic review of the bank’s current policy stance the first item on her agenda. 

This is expected to take months and could mean that Thursday’s policy event lacks market-moving information, which would leave investors looking to Friday’s PMI surveys for clues on the Euro outlook. 

“Eurozone long term yields bottomed out in late Q3 last year, as the US and China stepped back from further trade war escalation. The following reduction in the chances of serious Eurozone recession has tampered expectations of further ECB easing, and allowed the euro to rally modestly,” says Ranko Berich, head of market analysis at Monex Europe. 

December’s IHS Markit PMI numbers were revised higher for the Eurozone manufacturing and services industries earlier this month, although the manufacturing industry remains mired in a contraction much like its counterparts across the developed world. 

This has boosted sentiment towards the Euro but means Friday’s ‘flash’ numbers for January will be watched closely by the market. Any disappointments will weigh on the single currency while upside surprises would likely draw a bid from the market. 

Consensus is looking for the manufacturing PMI to rise from 46.3 to 46.9 while the services PMI is seen rising from 52.8 to 52.9. It’s possible the manufacturing PMI for Germany, which is seen rising from 43.7 to 44.6 when the number is released at 08:30 Friday, will garner more attention from the market than the Eurozone numbers that are set for release at 10:00 on the same day. 

“The “flash” January PMI release will provide an early indication of EA growth momentum in Q1 20. Business sentiment in December was mixed with the services sector remaining resilient into year-end amid persistent manufacturing gloom. We expect EA manufacturing sentiment to get some support from an improving global trade backdrop, while services sentiment should remain at healthy levels,” says Iaroslav Shelepko, an economist at Barclays

Technical Indicators

Overall, the bias in prices is: Sideways.

The projected upper bound is: 1.12.

The projected lower bound is: 1.10.

The projected closing price is: 1.11.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 27 white candles and 22 black candles for a net of 5 white candles.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 23.0190. This is not an overbought or oversold reading. The last signal was a buy 5 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 43.72. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 99 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -121.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 12 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 8 period(s) ago.

Rex Takasugi – TD Profile

FOREX EUR= closed up 0.000 at 1.109. Volume was 100% below average (consolidating) and Bollinger Bands were 12% narrower than normal.

Open     High      Low     Close     Volume___
1.109 1.109 1.109 1.109 48
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 1.11 1.11 1.11
Volatility: 4 5 5
Volume: 62,104 57,124 77,124

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX EUR= is currently 0.4% below its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of EUR= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on EUR= and have had this outlook for the last 1 periods.

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