The Euro Fails to Hold Gains, As Economy and the ECB Turn Softer
The price of EUR/USD continues to remain bearish since it reversed lower in the middle of July. Moving averages have done an excellent job of providing resistance during retraces higher such as the one we saw earlier this week, and driving down prices. Notably the 20 SMA (gray) and the 50 SMA (yellow) on the daily chart keep pushing the highs lower, indicating that the selling pressure has been rather strong.
The rise in US Treasury rates, as well as good data from the US which suggest a strong economy have been keeping the USD bullish, whereas the Eurozone economy has been weakening. Yesterday we saw some weak numbers from the Eurozone. While the Euro fell somewhat after the PMI report, the drop in US Treasury rates yesterday didn’t support EUR/USD . US 10-year bond rates are presently 20 basis points lower than Monday’s multi-year high of 5.025%, while the 30-year UST is now quoted at 4.95%, down from 5.18% on Monday.
This forex pair fell to the 1.0450s early this month, but tried to recover, with the price heading for 1.07. However, there is a resistance zone below that big round number and EUR/USD was also facing the 50 SMA (yellow) on the daily chart. Yesterday buyers pierced this moving average briefly, but the price reversed back down just below 1.07 and lost around 100 pips, falling below 1.06. The ECB has turned dovish and seems satisfied with the way inflation is falling, while the economic data from the Eurozone remains negative, so we expect this pair to continue falling toward parity.
Remarks by ECB President Lagarde, in a call with EU Officials
Inflation fight is going well
Eurozone economy to stagnate in the next few quarters
Risks to inflation have become more balanced
Fiscal impasse is starting to turn into a headache
The fear for the euro area now is that as the economy skirts around the risk of a recession, a second-round effect of inflation pressures would basically put them in a rather dire spot. Stagflation, anyone? Lagarde is trying to sound optimistic but surely she can’t say with unequivocal certainty that the ECB has done enough.
EUR/USD Live Chart
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