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Forex: EUR/USD closes below 1.3400; Time for weakness?

Europhoria is gone. The dark mode around the euro following the Draghi’s press conference on Thursday continues to weight on the EUR/USD, dragging the single currency to the region of 1.3350, and trading in consolidation mode around 1.3365.

EUR/USD came under pressure on Thursday following ECB Draghi's comments, and extended its weakness on Friday, breaking several support levels to settle below 1.3400 within the last hours. At the moment, the cross is losing 0.26% at 1.3365 facing the next support at 1.3349 (low Jan.25) ahead of 1.3265 (low Jan.23) and then 1.3215 (Lower Bollinger). On the flip side, a break above 1.3462 (low Feb.5) would expose 1.3510 (MA10d) and finally 1.3577 (high Feb.7).

"Policymakers did a 180 on currencies" BK's analyst stated Kathy Lien. "When the ECB met in January, the EUR/USD was trading around 1.3080. Since then, the currency appreciated over 5% against the U.S. dollar before settling up 3% ahead of this week's meeting," points Lien. " So from a valuation perspective, the value of the EUR/USD has changed and if the EUR/USD was at 1.37 before this week's meeting, Draghi would have probably been even more critical of the move in the currency."

Kathy Lien believes that between 1.3250 and 1.3350 would be a good value for the euro. "Even if the Eurozone can handle a stronger currency, endorsing the move could cause the EUR/USD to overshoot levels that the central bank would be comfortable with. Having this in mind, the fundamentals for the Eurozone haven't changed. "

On the other side, Danske bank states in a recent report that verbal intervention by ECB will not reverse the EUR/USD uptrend. "in the near term we could see euro money market rates declining a bit more which might put some pressure on the euro and a near term test of EUR/USD in 1.40 clearly is less likely given the dovish tone from Draghi yesterday. However, there are still several factors supporting the euro, such as continuing global recovery, more safe-haven flows back in the euro and other major central banks still favoring a historically loose monetary policy, and we expect EUR/USD to continue its uptrend in the coming months."

However, "Persisting negative tone on 4h chart, sees room for further easing, while higher pointing hourly indicators are not expected to produce any more significant recovery, while below 1.3500", says Slobodan Drvenica, analyst at Windsor Brokers Ltd. "Session high at 1.3428, offers initial resistance, ahead strong 1.3458, 05 Feb low and 1.3500, Fib 61.8% of 1.3576/1.3359 slide".

According to the Fxstreet.com brokers, banks and experts forecast, the EUR/USD's Long-term views reflect recent bearish mood, while one week forecast is close to the recent highs. 1-week forecast is 1.3446, 1-month is 1.3543 and 3-month is 1.3369.

The Week Ahead

Monday docket in the euro area would be practically non-existent, as the only releases would be the French Industrial Production and the Portuguese trade balance. In the US, market won't have fundamental references. However, investors must pay attention to the following data across the week:

- US Retail Sales (Feb 13 13:30 GMT)
- US Reuters/Michigan Consumer Sentiment Index (Feb 15, 14:55 GMT)
- Japan BoJ Interest Rate Decision (Feb 14, 03:00 GMT)
- EMU Gross Domestic Product (Feb 14, 10:00 GMT)
- UK Consumer Price Index (Feb 12 09:30 GMT)

Wall Street closes at multi-year highs on positive earnings and fundamental data

The US stocks market has closed positive on Friday with the S&P 500 finishing at 5-year highs and the Nasdaq at highest since 2000. Both indexes have posted their sixth straight week of gains. Dow ends slightly lower, below 14,000.
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The issue to keep an eye on early this week, according to Marc Chandler. Head of Currency Strategy at BBH, "is whether recent price action represents a correction to the recent trend, a reversal or the start of a new trend."
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