EURUSD is a Sell on Trend Confirmation But Can the Move Last?

The euro is forecast to maintain its trend lower with strategists at S.E.B making it their favoured weekly trade.

The euro has fell to fresh 6 month lows against the U.S. dollar with the soft recovery at the beginning of the week yielding to further losses. 

Traders no doubt are basing this decision on the divergent policy positions between the US Federal Reserve and European Central Bank.

There has been a lack of US / Eurozone economic data for traders to grip confirming just how important technical observations and trend momentum are at this time for this particular market.

In a note to clients S.E.B, the Swedish bank have consulted their trend models to get input from more sources than past prices.

Their conclusion is that selling the EUR/USD should be their top weekly trend trade saying:

"This week the return of USD strength is evident with the three strongest trends all being dollar related.

"Among the three USD/NOK is already severely stretched on the downside and thus short USD/SEK or EUR/USD should rather be considered."

Dangers of Chasing the Trend: Is Euro Exchange Rate Weakness Going to Last?

Looking at fundamentals we see the euro has been spooked by new reports of agressive policy action taking place at the ECB before the end of 2015.

With the euro under pressure it is worth pointing out that the EUR/USD is now trading below its forecast figure provided in the ECB's September staff projections.

And herein lies the dangers of chacing the trend blind.

"With Euro-Zone economic data - notably inflation and PMI readings - starting to turn the corner, any further EUR/USD downside may diminish the need for a substantial easing package in December," warns Christopher Vecchio, Currency Analyst, at DailyFX.

Therefore this trend lower in the euro / dollar rate could be a short-term one and those looking to ride it to parity and beyond could be a little over-optimistic.

"If sustained, a weaker euro suggests the European Central Bank ECB might not have to go as aggressively in strengthening stimulus, a view that could help ease headwinds on the euro," says Joe Manimbo,  Senior Market Analyst at Western Union.

According to financial news agencies, the ECB meeting on 3 December is no longer about whether the ECB will cut interest rates, but by how much it cuts its rates.

Another interesting observation to consider is that made by Jyske Bank's Leander Dreyer concerning the influence of equity markets:

"Equity market is beginning to trade with bearish tones, and we know that the correlation between EURUSD and the equity market is very high. If DAX continues to slide, we will see a higher EURUSD rate in the near future."

However, Jsyke stay with the consensus view that for the longer term the divergence between Europe and the US will still send EURUSD lower.