EUR/USD: another leg down (video)

  By Elizaveta Belugina

During the past week EUR/USD made another leg down. This time the pair renewed the 2014 minimum pushing it below $1.3450.

From the fundamental point of view, there’s some improvement in the US data and next week may bring more positive figures as America will release economic growth and labor market statistics. The Fed isn’t entirely dovish either as it sent a word that the interest rates will rise sooner than forecast if jobs data “continues to improve more quickly than anticipated.” At this point, however, we don’t think that American employment data have improved enough or will improve enough in the near future, so we think that major changes at the Fed’s policy stance are unlikely for now. Still, in line with the current track of action adopted by the Federal Reserve we expect the central bank to continue tapering QE next week as it did in the previous months.

Compared with the US, the situation in the euro area looks worse: economy’s weak, government debt’s mounting, and there are risks to the European companies because of the sanctions which are currently being prepared against Russia. In the past week data showed that the European composite PMI rose more than expected with especially good reading from Germany, but French reading once again contracted and so did German IFO business climate. The highlight of the next week for the euro area will be the region’s inflation data. As the pace of the money supply increased in June, we believe that we won’t see another decline in inflation. This should give the single currency some support.

In our view, the pair will be drawn to the lower border of the weekly Ichimoku Cloud at $1.3320. There will surely be support levels on the way down: $1.3423 (200-week MA), $1.3415 (June 2013 high), $1.3400. The outlook will remain bearish as long as the pair’s trading below $1.3550. Resistance is also at $1.3485 and $1.3520.

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