November 7, 2012 in Forex Analysis
Since the middle of September and more specifically from September end, a clear directional trend was missing in the markets. Any bearish move of EUR/USD has been finding support over 1.2800. The day of election results from U.S. clearly broke that pattern.
During yesterday’s analysis for EUR/USD, we had mentioned that more downward move was expected for the currency pair. CEOs around the U.S.A. and in some cases around the globe may be having a negative economic outlook with Barak Obama getting reelected as the president. However the fear of higher taxes and spending cuts and hence the weaker economic outlook does not over weigh the uncertainties of the election results, at least in the short term. The results killed those uncertainties and US Dollar showed that by gaining strength. EUR/USD fell and broke the support of 1.2800 or more specifically 1.2804.
Market Events of Yesterday and Today:
Yesterday’s economic releases from both Europe and U.S. do not give any clear picture for the short-term movement. Today also we do not have many important market events except trade balance from both Germany and the U.S. and jobless claims from the U.S. ECB’s Interest rate decision will also be there today but that is not expected to be changed from the current 0.75%.
Where does Europe leave us?
Well, the overall outlook is not good from that part of the globe. In May 2012, next year’s growth forecast for Euro zone was 1%. The European Commission cut that to 0.1% or practically now growth in 2013. The growth forecast for 2013 for Germany was cut to 0.8% from the previous 1.7%. Now at one hand the struggling economies of Euro zone i.e. Spain, Greece, Italy and Portugal, to name the main, keep the overall bearish outlook intact and on the other hand the heavyweights like Germany are adding to that bearish outlook.
As a summary we can say that Euro remains in pressure even though some market noises may bring some spikes for short-term.
What do the technical indicators and price action say?
Let’s see some charts and then talk about those:
EUR/USD Daily Chart -1:
The red line in the above chart is 55-day EMA line and the yellow one is 200-day SMA line. The recent upward jump clearly found resistance just below the 55-day EMA. Then, as mentioned above, the price action broke below the support of 1.2805 (the dashed line). This indicates the bearish pressure. The 200-day SMA support is currently near 1.2679.
EUR/USD Daily Chart -2
The above chart shows the classic example of Fibonacci retracement. The price retraced to 30.2% level of the upward move during July 24th and September 17th. Why we mentioned “classical example” is because the 38.2% retracement level is clearly bringing support. If this support continues then some upward correction towards 1.2820 may take place before any further fall.
EUR/USD Weekly Chart:
The above weekly chart shows that the price action failed at the lower edge resistance of the weekly Ichimoku cloud. EUR/USD has been trying to break this resistance for 9 straight weeks but seems to be unsuccessful in doing so. This, again, is a bearish indication. The next support level here is the support of weekly Kijun line and that is currently near 1.2608.
What to Expect from the Markets:
Considering all the market fundamentals and the price actions, as mentioned above, we remain bearish and expect some deeper moves. This outlook will neutralize for short-term if any decisive break over 1.2885/1.2890 or the 55-day EMA takes place and price sustains over that.