EUR/USD Exchange Rate Caught in 'Negative Technical Situation'

The euro v dollar exchange rate starts 2016 as an under-performer as Eurozone inflation numbers force the pair into a technical downturn.

The euro is on the backfoot following the release of data that confirms prices in the Eurozone are simply not finding upside traction.

The ECB is desperate to push inflation back towards a more sustainable and benign footing at 2.0%. Today's reading of 0.2% is well below this level. Markets had forecast a figure of 0.3%.

"Despite relatively aggressive policy measures last month at his press conference, notably cutting the deposit rate and extending Quantitative Easing, inflation woes are not easing for Draghi," says Alex Lydall, Senior Sales Trader at Foenix Partners.

The numbers will add to the growing pressures seen on the euro at the start of 2016 which has just come out of what was a strong December period.

Inflation is a headache for the euro - 24 hours earlier German inflation numbers came in lower than expected confirming that measures taken by the European Central Bank to boost price rises may be failing.

Will the ECB have to throw more money into the Eurozone economy to stimulate prices?

If the answer to this question is yes then the risks to further declines in the euro are significantly heightened.

For now, decision making at global central banks remains the central focus for currency levels - and an active ECB could well be the highlight of 2016.

“This could trigger further EUR losses. Support will be at 1.0735/25, followed by 1.0640/30; resistance is likely to be met in the 1.0850/80 area, with 1.1040-1.1130 a significant topside region,” say Lloyds commenting on the outlook for the euro to dollar exchange rate.

At the time of writing the euro to dollar exchange rate is quoted at 1.0806 on the inter-bank markets.

According to Ralf Umlauf at Helaba Bank, the technical situation is now "negative for the euro."

"Not only do the indicators in the daily chart imply scope for further losses, as  the drop below the lower limit of the sideways range also suggests caution," says Umlauf in a briefing note to clients.

Helaba say supports for EURUSD are now seen around 1.07. The low at 1.0674 is worth noting below this level. Resistances are found at 1.0840, 1.0947 and 1.0982. Our favoured trading range: 1.0670 – 1.0840.