EUR/USD: oversold, but bearish
By Mark Jensen
EUR/USD is crawling up from the lows of Friday and earlier today in the $1.3615 area. Euro’s oversold and there’s divergence in MACD and RSI at H4. Still, we believe that recovery will be likely limited by resistance at $1.3700 and $1.3740. As we are getting closer to the ECB June meeting, there will be more talk about the easing measures. The European elections came and went: the euroskeptics gained votes, but that was something everyone had expected and the pro-European parties retain majority, so we don’t have strong impact on the market.
This week pay attention to the M3 money supply figures due on Wednesday and Italian and Spanish inflation numbers on Friday – weak figures will reinforce the case for more easing. The 3-day ECB forum has started on Sunday in Portugal. Mario Draghi has already said that the ECB was ready to act should disinflationary pressures rise and the possible steps which could be adopted at the monetary policy next week include broad based asset purchases or interest rate cuts to new bank loans.
Note that euro’s weakening might be gradual. EUR/USD will be also sensitive to the US data and the forecasts aren’t inspiring. I am the most troubled by the US GDP on Thursday which may actually be revised down as analysts expect contraction. In addition, although I am a long-term euro bear I don’t think that its decline will be steep. Conventional measures are more or less priced in the pair’s rate. If they weren’t the pair would be at around $1.3500 now or lower. Only QE from the ECB may cause a real slump. So, keeping all these things in mind, I believe euro will spend this week mostly between 200- and 100-day MA before aiming for new lows the following week. Support is at $1.3600 (psychological level), $1.3550 and $1.3520.
Chart. H4 EUR/USD