The Euro to US Dollar Exchange Rate's Recent Rally is Looking Shakey
The Euro to US Dollar pair had been in an uptrend but a recent trendline-break now makes the chart look more bearish.
We see a probable continuation down from here to a target at 1.1040, where the 50-day moving average (MA) is situated.
This is based on the length of the move prior to the trendline break, which is likely to be replicated after the break – a tenet of technical theory.
The move prior to the break, labelled ‘a’, should be replicated after the break, in an extension of the unfinished ‘c’ wave to the target at about 1.1040.
Whilst support from the monthly pivot at 1.1115 provides underpinning strength the trendline break is a strong bearish signal which is likely to see the pair move below the pivot eventually.
Momentum, as measured by MACD is bearish and further encourages our negative assessment.
From a fundamental perspective, sentiment towards the pair appears to be softening.
Whereas previously most analysts were bullish, exemplified by HSBC’s EUR/USD call to “grind higher” to 1.1450, Westpac Bank have put out a bearish call.
They argue Eurozone bond yields are falling and so are less supportive of the pair, that less risky political outlook has now been “fully priced in”, and that data is likely to be thin or negative into the end of June.
The change in sentiment is also reflected by the view of Abn Amro’s Nick Kounis, who sees the Euro as vulnerable to falling inflation expectations which he now views as unlikely to meet the European Central Bank’s (ECB's) own end of year forecasts, due to persistently high unemployment.
