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Currency Point: Down, down to EUR town

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EUR is racing its way to the bottom currently, even Brexit risks are unable to slow EUR/GBP to the downside, although as ever EUR/GBP is a risk cross I just can’t touch.

It’s difficult not to hold a bearish view on the EUR as activity points continue to disappoint. Italy has just entered a technical recession. PMI, business and consumer surveys in January showed further declines across Germany, Italy and most of the peripheral Euro-zone nations.

The big standout from the recent data was German industrial production which remained weak even with a long-awaited bounce in the auto sector, the sector blamed for Germany’s Q3 GDP contraction.

Now, this weeks’ German GDP read did see it bounce out of contraction in the Q4 quarter and adverted a technical recession however it was marginal, and the 2019 outlook is still to the downside.

Then there is France, and although it’s holding the line on manufacturing and consumption there is signs of strain in employment and cost ‘issues’. It is also one of the more heavily impacted European nations on the issue of ‘Brexit’ due to the UK’s high-level of consumption of French produce. It too could follow is German peers into a new slowdown.

These economic developments emphasise why the EUR is in a downward spiral and looking to test $1.12 – the pessimism is palpable. Couple this with US-led upsides such as better than forecasted activity and actuals such as GDP and employment yet to show signs of the ‘slowdown’ risks that highlighted US trade in Q4.

There is every reason EUR/USD should test this level.

However, a lot of this pessimism is priced in and looking at the movement in the USD over the past 12 months and its ‘peaking out’ in late December early January time views coming into trading here as it is likely to be a range bound. The caveat therefore is a ‘significant’ downside break in EUR/USD would require something much more significant than the damp data from Europe.

Thus, if your trade timeframe is ‘interim’ my view EUR/USD is heading $1.12 looks very possible. However, once we move this time frame to 3 to 6 months the data makes EUR/USD much more range bound and $1.12 would probably signal a buying opportunity for those with a little longer time view.

 

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