EUR/USD extends plunge as euro stagnates and dollar surges
James Chen, CMT May 24, 2016 3:50 PM
With the German ZEW economic sentiment coming out significantly lower than expected on Tuesday (6.4 vs 12.1 expected), and the US dollar continuing to surge based on renewed expectations of a near-term Fed rate hike, the EUR/USD has not had much reason to rise as of late. Economic stagnation in the euro area continues to weigh on an already-dovish European Central Bank that has been in persistent easing mode, dragging down the euro currency. Meanwhile, the US dollar has been given a substantial boost by recent hawkish talk from the Federal Reserve, hinting at the likelihood of a Fed rate hike within the next few months. Additionally, the dollar has been helped by a string of positive economic data releases including, most recently, Tuesday’s better-than-expected number for new home sales in April (annualized 619K vs 521K expected, with a higher revision for the previous month to 531K).
As a result of these forces combining to pressure EUR/USD lately, the currency pair has been in a sharp decline since it hit a new 8-month high at 1.1615 in early May. That high was established with a conspicuous "shooting star" reversal candle at the underside of a key uptrend line, indicating a clear bearish turning signal. Since that candle pattern formed, EUR/USD has spent the past three weeks falling precipitously, breaking down below both its 50-day moving average and a parallel trend channel that has roughly defined the recent uptrend since the December low near 1.0500.
Currently, the currency pair has dropped down to establish a new 2-month low and appears poised to reverse even more of the gains made during the noted uptrend that began in December. In the process, EUR/USD has come close to approaching both a major support level at 1.1100 and its 200-day moving average slightly below that level. Any strong breakdown below this support could likely open the way for more losses and an extension of the slide since early May. In this event, the next major downside target continues to reside at the key 1.0800 support level.
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.