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EUR/USD: Still Consolidating Around 1.3800, But Vulnerable
The single currency had a poor Easter weekend. A mixture of low volumes and a mini-resurgence in the dollar caused the single currency to head south, reaching a low of 1.3785. An attempt to recover failed at 1.3810, after a mixture of weak construction data for February, which rose a mere 0.1% after a 1.6% gain in January, and comments from ECB member Coeure.
ECB members have been wreaking havoc with the EUR recently, Coeure joined in the chorus today and said:
• As the EUR strengthens, accommodative policy is more justified.
• EUR appreciation contributed to low inflation.
• ECB has room to cut rates further.
The dovish rhetoric continues to spill from the ECB, yet EURUSD is still less than 1% from its April peak. EUR/USD is in consolidation mode, and the bears may not attack the EUR until the ECB puts its money where its mouth is.
Wednesday’s flash PMI readings for the currency bloc for April could be key for the EUR in the short term. If these surveys are moderately higher, as the market expects, then we could see the EUR cling on to 1.3800 for a while longer, but any weakness in the surveys and we could see EUR fall sharply.
While the market fails to react to ECB rhetoric, it’s time to look towards the technicals. A couple of bearish developments stand out:
• The bearish crossover on the daily MACD suggests that momentum is to the downside.
• A daily close below the daily cloud at 1.3804 would suggest an end to the recent up-trend.
Takeaway:
• The fundamental backdrop is weak for the EUR, however EURUSD remains in consolidation mode.
• Wednesday’s flash PMI surveys for April could be important for the short term direction of this pair.
• The technical picture is looking weak for EURUSD, a daily close below the top of the daily cloud at 1.3804 may trigger further downside.
Some key levels on the downside to watch include:
• 1.3790 – the 50-day sma.
• 1.3762 – the 61.8% Fib retracement of the April recovery.
• 1.3664 – this is a critical level of support and the 61.8% Fib retracement of the February to March advance. If we fall below here then it opens the way to further downside. 