Since my last analysis on the 15th of March, more key factors affecting the Euro and the Eurozone, after Draghi’s last speech at the ECB conference, need to be taken into consideration.
There has been weakening growth within the Eurozone and this has affected the future inflation forecast as well. The Headline inflation predictions have also been downgraded by the ECB, thus forecasting inflation at 1.6% for the financial year of 2021.
This sluggish growth may also lead to a slowdown in the recovery of the underlying inflation rate within the Eurozone. This may be a part of the cause for the bearish trend that the EUR/USD pair has been experiencing.
Brexit remains a highlight of the EU, as the deadlock continues into the EU elections and the UK has been forced to extend the Article 50 negotiations period until the 31st of October 2019, as this has been set as the new leave date.
I consider the big-picture EUR/USD rate, as a very good benchmark of the economy for both the EU and the US. I was first expecting a drop close to 1.11, which has already been reached. This doesn’t mean that the price will not try to break below that level again, we may see the price ranging between 1.11-1.12 for some time until bulls make an attempt to take control. Thus, we may finally see the Euro gain some strength and the rate climb at higher levels (1.18-1.1820) during the third quarter of the financial year.
Tension between the USA and China has been putting some pressure on the dollar, causing a visible level of short-term volatility in the EUR/USD pair, and the rate to rise in the short term. However, this should even out over time.
The Euro has been following a steady downward channel, as pointed in the last currency clip back on 15th of March, which still proves to be a valid trend as the pair continues down this channel throughout April and into the first trading week of May. There were several attempts to break both upper and lower boundary but both sellers and buyers didn’t manage to keep the momentum for more than a few hours, which makes the specific channel much more valid.
On the Daily chart the pair can be seen to have been constantly creating and breaking through support levels reaching the rate of 1.1110, which is now the next durable support around with a firm resistance level at 1.12 which is also a psychological level and, of course, at 1.131. Price is now floating around the 61.8% of the Fibonacci retracement level at 1.1170.
If this channel manages to continue being a valid point of reference, a possible break could open the way for 1.0950, as stated before. We can see that the price retraced all the way down to the 1.11 and has been attempting to pass this area, but this is proving to be quite a difficult task. Price may try to break again below that level. A stop of the downward move due to the key support level could push the price back to higher levels and we should always be ready to see some action from bulls.
To sum up and conclude, price is now trading at critical levels, a possible break above or below these levels could drive the price higher or lower but in sharp moves. There is still much space for the rate to move between 1.1570 and 1.11 depending on the view and appetite of each investor. If bulls manage to push the Euro at higher levels and break above the 1.1570, then we shouldn’t be surprised to see the price reaching levels that it hasn’t reached since last September (1.18).