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Currency Analyst since 2010

EUR/USD enjoys temporary relief

By Elizaveta Belugina

The past week brought the long-awaited correction to EUR/USD: the euro managed to approach $1.2800 despite bad news from the euro area (German factory orders plunged by almost 6%, while the nation’s industrial production slumped by 4%). The advance of the pair may be explained by the overall bearish correction of the USD. Then, however, the ECB President Mario Draghi managed to push the euro down as he promised to expand stimulus measures if needed.

The technical picture is mixed. On the one hand, $1.2500 has shown itself as a good support. On the weekly chart the pair’s just emerging from extremely oversold levels, and 12 weeks of decline surely require a bigger retracement up. On the other hand, the bears sell the single currency on rallies. Note that selling has intensified right at $1.2790, the 61.8% Fibo retracement.

The euro has the lowest chance to correct higher versus the US dollar then the other currencies do. We may see more upside in the short term if market players think that the ECB won’t ease its policy much further. This is possible as German central bank is against additional stimulus measures. The weekly close near $1.2750 will be a bullish factor. However, we don’t think that the euro will have strength to go beyond $1.2900. Support is at $1.2570 ahead of $1.2500. The break below this latter handle will be a very bearish signal with potential target at $1.2250.

Next week pay attention to German and the euro zone’s ZEW Economic Sentiment and the region’s industrial production on Tuesday; German Bundesbank Monthly Report on Wednesday; and the euro area’s final September inflation figures on Thursday.

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