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5 Nov 2015
EUR/USD: Bearish trend signals appear to be strengthening - Scotiabank
FXStreet (Córdoba) - EUR appears vulnerable, consolidating around fresh multi-month lows with data-driven weakness (weaker German factory orders) reversing on technical support triggered by the break of 1.0850, said Eric Theoret, FX Strategist at Scotiabank. They maintain expectations of EUR weakness on the basis of central bank policy divergence.
Key Quotes
“The European Commission has released its Autumn economic forecast, highlighting ‘subdued’ domestic demand and ‘challenging global conditions’ while underscoring the upside surprise from export growth resulting from a 6% decline in the trade-weighted exchange rate. The growth forecast is little changed, however we note a material downward revision to the 2016 inflation forecast from 1.5% to 1.0% with 2017 seen at 1.6%-still below the ECB’s inflation target”.
“Translated comments from ECB President Draghi hint to a reiteration of his dovish bias, and we maintain an expectation for EUR weakness on the basis of central bank policy divergence. The 2Y German-U.S. yield spread continues to widen and appears set to test-1.15%, a near-10 bpt widening from Monday.”
“EURUSD short-term technicals: bearish—EUR is testing fresh multi-month lows at levels last seen in July, with a heightened focus on the July low 1.0809. A break of 1.0800 would shift the focus to further weakness and the late- April doji candles around 1.0720. Momentum indicators are bearish but have not yet reached oversold levels. Bearish trend signals appear to be strengthening.”
Key Quotes
“The European Commission has released its Autumn economic forecast, highlighting ‘subdued’ domestic demand and ‘challenging global conditions’ while underscoring the upside surprise from export growth resulting from a 6% decline in the trade-weighted exchange rate. The growth forecast is little changed, however we note a material downward revision to the 2016 inflation forecast from 1.5% to 1.0% with 2017 seen at 1.6%-still below the ECB’s inflation target”.
“Translated comments from ECB President Draghi hint to a reiteration of his dovish bias, and we maintain an expectation for EUR weakness on the basis of central bank policy divergence. The 2Y German-U.S. yield spread continues to widen and appears set to test-1.15%, a near-10 bpt widening from Monday.”
“EURUSD short-term technicals: bearish—EUR is testing fresh multi-month lows at levels last seen in July, with a heightened focus on the July low 1.0809. A break of 1.0800 would shift the focus to further weakness and the late- April doji candles around 1.0720. Momentum indicators are bearish but have not yet reached oversold levels. Bearish trend signals appear to be strengthening.”