EUR to USD Conversion Below 1.10 But Unlikely to Break Below 1.09

The euro exchange rate is weakening again but losses beyond 1.09 against the US dollar will become hard to deliver according to the research contained in this article.

The EUR/USD rate has swung back lower and while there is reason to believe further declines are likely we must remain vigilant of the sticking points in any such move.

Over the past 24 hours the EUR edged below 1.0990, recording a low of 1.0987, but closed higher at 1.1015. This hints at the support offered at 1.10.

At the time of writing the exchange rate is below this key point, but “only a daily closing below 1.0990 would indicate further EUR weakness towards the next support  at 1.0850. Overall, this pair is expected to remain under pressure unless it can reclaim 1.1130 in the next few days," says Quek Ser Leang at U.O.B in Singapore.

At PoundSterlingLive.com we see that, depiste the strong mini-down-trend, there is a cluster of support in the 1.09s, especially the 1.0970s, which provide a tough obstacle to more downside.

This cluster includes the R1 monthly pivot at 1.0977, the 50-day MA at 1.0980 and a minimum price target for the move off the Feb 11 highs at 1.0945.

Only a clear break below these levels would confirm more downside.

Such a move might be confirmed by a break below the 1.0800 level, which would then be expected to reach a target at 1.0700.

In December the euro moved sharply higher following the ECB rate meeting.

Following further extensions higher as a result of heightened risk aversion, many market commentators thought the euro might be in a new established up-trend, and the recent decline back down to 1.1000 took many by surprise.

However, technicians probably remained sceptical as the move higher was only composed of three waves in the form of a classic A-B-C corrective pattern, and so there was always a chance of the dominant down-trend renewing.

Now that it has, the question is, whether this resumption of the down-trend is likely to extend to the 1.0533 lows or not?

Online lender and broker Swissquote, for one, see a strong possibility of a move down to the 1.05 lows as long as resistance at the larger range highs of 1.1453 holds.

“In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favour a gradual decline towards the support at 1.0504 (21/03/2003 low).”

Commerzbank’s Karen Jones, notes the break below the 200-day MA as key, but sees a move down to the 1.05 lows as hinging on a break below 1.0929:

She begins her note with the title: “EUR/USD – Market annihilates the 200-day ma and sells off further”

Adding:

“EUR/USD has collapsed through its 200-day ma and looks set to extend losses towards the base of the channel currently circa 1.0929.

“Longer term we would treat a close below here as the trigger for a move to 1.0560/1.0457.”

She also notes how the 200-day will probably now flip into resistance:

“The 200 day ma at 1.1050/87 should now act as initial resistance and ideally while capped by 1.1175 (mid-point of the channel) the market will remain directly offered.”

US Dollar in the Driving Seat Today

Looking ahead for the US dollar, February’s preliminary US Services and Composite PMI reports are in focus.

The surveys’ internals are likely to be more interesting than the headline figures, with measures of price growth at the forefront.

January’s reports foreshadowed better-than-expected official CPI readings.

More of the same this time around may help set the stage for PCE data due on Friday and wage growth numbers embedded in next week’s Employment report.

“Upbeat outcomes may help resurrect 2016 Fed rate hike speculation, which is likely to boost the US Dollar but could trigger another aggressive risk-off push,” says Ilya Spivak at DailyFx.

Scheduled comments from Richmond Fed President Jeff Lacker may also prove noteworthy.

Lacker was the most hawkish member of the 2015 committee, pushing for a rate hike far sooner than the eventual move in December.

“It could be telling to see if his optimism has survived recent volatility, and why,” says Spivak.