EUR/USD to Extend Downtrend As ZEW Sentiment Weakens Further

Posted Tuesday, September 12, 2023 by
Skerdian Meta • 2 min read

EUR/USD has been on a downtrend for more than a month. During this period, the price fell below the 1.08 level, which it hadn’t reached since early June. Despite occasional upward movements, sellers have remained in control of the market.

This persistent downward movement in EUR/USD can be attributed to several factors. First, economic data from Europe has been consistently revealing a significant economic slowdown in the Eurozone, which can lead to a weaker Euro (EUR). Second, the Federal Reserve (FED) has not yet shifted to a more dovish (accommodative) monetary policy stance, which has kept the US Dollar (USD) relatively strong.

One significant development last week was that sellers managed to push the price below the 200-day Simple Moving Average (SMA) on the daily chart. This is considered a notable breakout and a sign of increased bearish momentum. Additionally, the price broke below the lower boundary of a bullish channel, further indicating a shift in the market’s sentiment. Now this pair has two indicators to push above, one at 1.0790 and another at 1.0820.

On the downside, the next target for sellers appears to be in the 1.0630s, which was the most recent low. If the price falls below this zone, it would establish a lower low, breaking the previous pattern of higher lows, which is typically seen as a bearish signal. Earlier today we had the Eurozone and German ZEW economic sentiment figures for this month, which were expected to show further deterioration after a small improvement in August. This indicates that the economy is still heading into a possible recession, so we will try to sell retraces higher here.

German September ZEW Economic Sentiment

September ZEW survey current conditions -79.4 points vs -75.0 expected
Prior was -71.3 points
Expectations -11.4 points vs -15.0 expected
Prior was -12.3 points

That’s the lowest reading since August 2020 as the German economy continues to stutter amid growing risks of a deeper recession. The outlook reading was better than estimated and an improvement from August but is still a negative reading, so there’s not much optimism in that I would say.