EUR/USD: market turned very bearish (video)
By Elizaveta Belugina
EUR/USD has touched new minimums of 2014. The pair was driven down mainly by the stronger US dollar. As for the euro area, the region’s composite PMI came lower than forecast confirming the economic slowdown. Although German manufacturing and services indicators were higher than expected, both declined in comparison with the previous month. Still, traders were prepared for worse, and there was some short covering on the oversold single currency by the end of the week.
Next week we’ll have a look at the sentiment of German business and consumers. In addition, the euro area’s flash inflation data will be released on Friday. Low inflation is the main concern of the ECB.
On the weekly chart one can see that the pair is now more likely to close below the bottom of the Ichimoku Cloud at $1.3320 and also the support line of the descending wedge which has been forming since April. This will be a long-term bearish signal. The bullish Cloud itself has become very narrow and is ready to switch to the bearish mode. At the same time the pair is already at the lower weekly Bollinger band. In addition, EUR/USD has reached the initial target: 38.2% retracement of the advance from 2012 at $1.3241.
Plus on the daily chart there’s some divergence at MACD and RSI: these indicators didn’t confirm the recent lows. As a result, if there appears any fundamental reason against the US dollar, the pair will be able to correct higher and we’ll finally see some short covering. Resistance is at $1.3370, $1.3400 and $1.3450. On the downside the next levels to watch are $1.3200, $1.3180 and $1.3105.
The ECB’s President Mario Draghi will probably remind the market that the central bank is ready for further monetary stimulus. The dynamics of the pair will be determined primarily by the position of the Federal Reserve and Janet Yellen at its head.