EUR/USD: doomed to decline
By Elizaveta Belugina
During the past week there were several weak releases in the euro area: the industrial production declined, while GDP growth in the second quarter turned out to be zero. At the same time, deep down everyone was probably expecting something like this, so the market’s reaction was modest. At the same time, with the course of time bad data will do their job: the difference in condition of the US and the euro zone’s economies is now evident, and the pressure on the ECB to increase monetary stimulus will rise – negative factor for EUR.
One thing which may hold the bears is concern that the current positions on euro have become too large and they could fold any time making euro jump up. However, such possibility itself can’t be a reason to purchase euro – the shorts may just keep and keep rising.
Next week there won’t be many important data releases in the euro area and those which will be will come out rather late – on Thursday. The situation is more or less clear: pointless to expect good figures, and the market likely won’t. These negative expectations will likely limit euro’s upside. The pair’s direction will depend primarily on America.
The most popular currency pair has spent the most of the week between $1.33 and $1.34. On the daily chart the 100-day MA at last went below the 200-day one. This means that despite the current lack of movement, the downtrend is becoming more and more prominent. At the same time, if the bears want to make a significant move down, they’ll need to make the pair close below the weekly Ichimoku Cloud at $1.3320. In this case they could hope for a decline below November low at $1.3295, let’s say for more than 100 pips below the Cloud. Taking into account the general downtrend our preferred strategy remains selling euro on the increases. Resistance is at $1.3470 and $1.3500.