EUR/USD: fasten your seatbelts (video)
By Elizaveta Belugina
Another week and another new minimum for EUR/USD. Euro had no reasons to rise. Inflation in the region’s powerhouse – Germany – is at the zero level and prices are falling in the troubled Spain. Inflation in the entire euro area declined to 0.3% in August, though the core reading, which doesn’t take into account the volatile energy prices, has edged up to 0.9%. The markets will be now waiting to see the reaction of the ECB to these data.
The highlight of the next week will be the meeting of the European Central Bank on Thursday. Analysts and experts now argue whether the ECB will announce some new steps or not. A week earlier Mario Draghi rocked Jackson Hole as he once again promised to do everything possible – this time in order to save the euro area from deflation. As a result, the expectations of additional ECB’s easing as early as the next week have mounted. However, in the recent days more and more people have started being skeptical that the ECB will act on Sept. 4. The reason is that the ECB will be doing TLTRO in September, and this measure is already announced.
If ECB’s president does nothing but speaking, this will likely cause a wave of short covering making euro retrace some losses. In any case, upside for EUR/USD is limited. As inflation expectations declined, the euro area’s inflation probably won’t be able to rise on its own, so Draghi will probably strengthen his rhetoric about further action. All in all, any increase of the pair will represent good opportunities for selling.
EUR/USD opened the week with the gap down which it failed to close. The pair has been trading sideways between the $1.3220 and $1.3150. Looking at the charts, especially the weekly one, we can see that the case for further declines has obviously strengthened. Still euro’s oversold and is likely to rebound a bit. Attempts of recovery will meet resistance at $1.3250 and $1.3300. On the downside the next target is at $1.3105. Later there will be $1.3020.