EUR/USD To Test Yearly Low?
Fiona Cincotta March 17, 2020 9:41 AM
Germany is heading for a recession. The situation is fast moving. However yesterday Chancellor Angela Merkel announced a general lock down of Europe’s largest economy. All shops are to be closed, no touristic travel domestically or abroad, restaurants open until 6pm and no sports or cultural events allowed. So, consumption will drop dramatically. Large car manufacturers have also announced a temporary halt to production. The supply shock demand shock will be crippling and the economic impact will be staggering.
And the problem is not just Germany, Italy, Spain and France, the largest economies in the eurozone all face severe pressure from the coronavirus outbreak, as governments lock down countries with already very fragile economies.
Meanwhile US data is also disappointing. Retail sales declined a -0.5% in February, missing expectations of 0.2% increase. These figures show that consumption, the main driver of the US economy had started to slow even before coronavirus social distancing measures were enforced, raising fears that the data out of the coming months will be hideous.
Despite the Fed’s best efforts to ease pressures in the money markets recent signals suggest that the moves haven’t worked. This is most likely a result of lenders hoarding the dollar in expectation of increased liquidity needs from companies and growing concerns over bad loans. The pressure was most explicit in the euro/dollar 3-month FX spread which widened to 124 bps at one point, its widest level since the European debt crisis and up from just 20 bps earlier this month. This means that market player are willing to pay higher premiums for dollars, an amber warning signal flashing.
Levels to Watch
EUR/USD is down over 1.5% at $1.10, it has picked up off session lows of US$1.0974. It trades below its 50, 100 and 200 sma and comfortably below the descending trendline.
Immediate support can be seen at $1.0974 (today’s low) prior to $1.0953 (low 28th Feb) and $1.0880 (low 26th Feb).
Resistance can be seen at $1.1026 (200 sma), $1.1118 (today’s high) and $1.1130 (100 sma). We would be looking for a move above $1.1170 to negate on the current bearish trend on 4 hour chart.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.