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EUR/USD: clouds on the European sky

EUR/USD slipped to 1.1160 on the expectations of the weak German ZEW economic sentiment index. The expectations were right: the index came out at 41.9 in May vs, the forecast of 48.8 and 53.3 in April.

Another bearish factor for the single currency was the comment of the ECB Board member Benoit Coeuré that the ECB would be ‘front loading’ asset purchases in May and June given likely low market liquidity in July and August. The European Central bank has thus reminded the market that it’s doing quantitative easing that lowers the European yields.

Analysts at Bank of America Merrill Lynch see the signs of a top in German 10-year bund yields like the bearish shooting star candle and inability to rise above 0.78%. If the yield falls below the 200-day MA at 0.60% and May 8 low at 0.52%, it will head down to 0.38%. The rise of German yields since the middle of April to mid May was driving EUR/USD up. Without this moving force the pair will lose its strength.

Still EUR/USD has good support at 1.1100/1.1050. This area should limit the losses of the single currency at least ahead the release of the Federal Reserve’s meeting minutes on Wednesday. At the same time, we expect negative pressure on the euro to strengthen.

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