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Currency Analyst since 2010

EUR/USD: bearish gap

By Mark Jensen

EUR/USD made a significant 40-pip gap and declined from the levels in the $1.3900 area to $1.3815. The ECB officials have tried to weaken the single currency: Mario Draghi said that further appreciation of euro would trigger more monetary stimulus. This probably means that the policymakers are uncomfortable with higher euro. At the same time US dollar strengthened as the situation in Ukraine has escalated and investors didn’t really price that in.

Analysts at RBC, however, warn that being short EUR is a “very short-term play”, because the conditions in the euro area’s periphery are improving and there’s modest recovery in the euro area’s economy. Danske Bank agrees that ECB’s talk without action won’t lead to the persistent depreciation of euro, because it’s supported by the monetary inflow to the euro area. The crisis in Ukraine will only intensify capital flight to the euro zone. TD Securities say that downside potential for EUR/USD is limited unless we get a clear break below $1.3695.

On the US dollar’s pair we have many important data releases this week starting with retail sales on Monday (12:30 GMT). In addition, the Fed’s Chairwoman Yellen will speak on Tuesday and Wednesday. The FOMC meeting minutes last week was more dovish than expected which shows the members of the Fed are still rather uncertain whether American economic recovery has gathered enough pace for a harder monetary policy.

Support for EUR/USD lies at $1.3820, $1.3780 and $1.3745. Resistance is at $1.3860, $1.3905 and $1.3940.

Chart. Daily EUR/USD

To contact the writer of this story: Mark Jensen at analytics@fxbazooka.com

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