• Euro waiting for ECB meeting on Friday
  • Currency continues to deteriorate
  • Testing major support level and psychological number

The Euro fell hard during the trading session on Wednesday as we reached towards the 1.10 EUR level. This attracted a lot of attention as it is a psychologically significant round figure. That’s not a huge surprise, as it had previously attracted a lot of attention on the news channels. Ultimately though, the real game changer is going to be what happens next at the European Central Bank (ECB) meeting on Friday.

Monetary policy decision

The monetary policy decision coming from the ECB should be rather dovish and perhaps offer more quantitative easing. However, that doesn’t necessarily mean that the market is suddenly going to collapse, because at this point the markets aren’t completely sure about what’s about to come.

Obviously, an interest rate cut could be further down the road, but then the question becomes whether or not there is more quantitative easing. Are the bond markets in the European Union about to be flooded with ECB money again? If that’s the case, then we get even further negative yields in the bond market, driving money away from the continent and into the arms of the United States, where there’s more in the way of yield.

Recessionary headwinds

There are also serious concerns about recessionary headwinds coming out of the European Union. Germany is just about there, Italy is too, and growth is anemic around the entire continent. As such, it does make sense that the Euro continues to go lower. It doesn’t necessarily mean that it needs to collapse, but the trend is most certainly a downward one, and with very good reason.

Technical analysis

eur/usd chart

EUR/USD daily chart

The market is well below the 61.8% Fibonacci retracement level and looks likely to go looking towards the 100% Fibonacci retracement level. From a longer-term perspective, that means we could be falling toward the 1.05 EUR level. However, this pair doesn’t tend to move very quickly, so this should be thought of as more than likely a potential grind lower.

To the upside, the 1.11 EUR level will cause significant resistance, just as the 50-day EMA will, which is just above there. Simply put, unless the ECB completely surprises and shocks the market, it’s very likely that the Euro will continue to fall from here and reach towards even lower levels.

There seems to be very little interest in buying the Euro, especially as global concern continues to pick up. Ultimately, the US dollar continues to attract a lot of flow against other currencies as well, and with all of the problems currently going on in the European Union, it makes sense that we continue to see the downtrend. Let us not forget that the European Union is also going to be hurt by Brexit, so that is yet another reason to think that the downside continues to be the favored one.

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Euro Awaits ECB Meeting

  • Euro shows lackluster rally on Friday
  • Shooting star on Thursday
  • Psychological bounce running out of steam already
  • 50-day EMA offers massive resistance

The Euro has rallied a bit during the trading session on Friday, after initially pulling back. This was probably more due to the job numbers missing in the United States, rather than anything else. Longer-term issues will continue to plague the Euro, and it certainly looks as if the overall trend should continue going forward. The trend has been relatively reliable, albeit choppy to the downside.

50-day EMA and lackluster rally

eur/usd chart

EUR/USD daily chart

While we did get a bit of a rally during the trading session on Friday, after the US jobs number came out slightly under expectation, the reality is that this pair continues to favor the US dollar for quite a few different reasons. When you look at the rally during the trading session on Friday, it is a bit lackluster overall, and the markets stopped shortly after the jobs figure was announced. The red 50-day EMA above has shown relatively reliable resistance. It is starting to reach towards the 1.11 handle, which was the scene of selling pressure late in the day on Thursday.

The lack of momentum to the upside shows just how little enthusiasm there is for the Euro, so one should probably take away the idea that the overall choppiness and negativity remains. In short, this is a simple continuation of the longer-term trend, which has been greenback-friendly.

Bond yields

The US bond yields still offer positive return, something that most of the European bonds can’t say these days. This has people more interested in owning the US dollar as money tends to go where it’s treated best. Think of it this way: if you are a fund manager, are you more interested in owning a bond that reduces 2% yield, or one that is guaranteed to lose 1% if held to maturity? That’s essentially the question people are asking themselves at this point.

Central banks are likely to cut rates, so although the US interest rates will be low, they will still be higher than European ones. This is a worldwide phenomenon, and with over $17 trillion worth of bonds around the world now offering negative yield, the United States might be the only game in town.

What to expect

In a nutshell, you should expect more of the same of what we have seen over the last year or so. It is a slow and steady decline in the value of the Euro, and now that we are decidedly below the 61.8% Fibonacci retracement level, it’s very likely that we will go looking towards the 100% Fibonacci retracement level, albeit very slowly. That would send this market looking towards the 1.05 area, which has caused massive buying pressure in the past. Whether or not we can break through is a question for another time, but it certainly looks as if it is the intended target.

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Euro to Continue Grinding Lower