EUR/USD Slightly Leading DXY
Since January 1st of this New Year , the US Dollar Index (DXY) has been on a 1 way move higher. The index has been during a long-term channel since mid 2018, and eventually broke below it in December, only to be halted at the five hundred retracement level from the lows on June 13th , 2018 to the highs on October 1st of last year. More recently, over the last 2 weeks, the DXY has broken through a key inflection point near 97.50/97.75. At this level, price broke through:
The upper trendline of the downward sloping channel, formed off the October 1st highs.
The bottom trendline line of the upward slopping channel from 2015
The 200 Day Moving Average
On a 240-minuted chart of the DXY, the upward trend is fully effect. However, there's many resistance just above. Price is currently trading near 98.15. there's horizontal resistance near 98.25, also because the 61.8% retracement level from the October 1st highs to the December 31sr lows near 98.40. (98.50 is that the target for the flag pattern which was formed off the lows as well). On addition, the RSI is over 75. Any reading above 70 is worth expecting possible pullbacks in price.
The Euro makes up almost 58% of the US Dollar index. So, it's no surprise that because the US Dollar Index moves higher, the EUR/USD would move lower. The EUR/USD was during a falling wedge since mid-2018, and on December broke higher out of the wedge. Price halted at the 61.8% retracement level from the highs on June 24th to the lows October 1st and reversed. More recently, over the last 2-week, EUR/USD has broken through a key inflection area near 1.1100. Near this level, price broke through:
The 200 Day moving average near 1.1135
The upper trendline of the falling wedge
The rising trendline off the lows from October 1st
Price is currently at horizontal and psychological support near 1.1000.
On a 240-minuted chart of the EUR/USD, the downward trend is fully effect. Price has moved lower out of a head and shoulders pattern and has already broken through horizontal support and therefore the 61.8% retracement level from the October 1st lows to the Decmeber31st highs, whereas DXY has not broken through its corresponding levels). additionally , the RSI is oversold and diverging with price, whereas the DXY isn't diverging. The target for the top and shoulders pattern is near 1.0935, which is additionally horizontal support.
If it seems to be the case that the EUR/USD is basically leading the DXY, one would expect the DXY to push higher through the near term resistance levels.
EUR/USD To Test Yearly Low?
EUR/USD has dropped through $1.1 its lowest level since late February amid a rush for the shelter dollar.
German ZEW sentiment data caused an already panicked market to worry some more. The ZEW index, which gauged financial analyst’s sentiment and consider on an economic situation dived in March, recording the steepest drop on record.
The ZEW index fell to -49.5 in March from +8.7 in February and is now at its lowest level since December 2011.
Germany is heading for a recession. things is fast paced . However yesterday Chancellor Angela Merkel announced a general lock down of Europe’s largest economy. All shops are to be closed, no touristic travel domestically or abroad, restaurants open until 6pm and no sports or cultural events allowed. So, consumption will drop dramatically. Large car manufacturers have also announced a short lived halt to production. the availability shock demand shock are going to be crippling and therefore the economic impact are going to be staggering.
And the problem isn't just Germany, Italy, Spain and France, the most important economies within the eurozone all face severe pressure from the coronavirus outbreak, as governments lock down countries with already very fragile economies.
US retail sales miss
Meanwhile US data is additionally disappointing. Retail sales declined a -0.5% in February, missing expectations of 0.2% increase. These figures show that consumption, the most driver of the US economy had began to slow even before coronavirus social distancing measures were enforced, raising fears that the info out of the approaching months are going to be hideous.
Offshore Dollar Market Stress
Despite the Fed’s best efforts to ease pressures within the money markets recent signals suggest that the moves haven’t worked. this is often presumably a results of lenders hoarding the dollar in expectation of increased liquidity needs from companies and growing concerns over bad loans. The pressure was most explicit within the euro/dollar 3-month FX spread which widened to 124 bps at one point, its widest level since the ecu debt crisis and up from just 20 bps earlier this month. this suggests that market player are willing to pay higher premiums for dollars, an amber alarm flashing.
EUR/USD hit a 14 month high on 9th March. Since then a correction has been is play which could see the pair retest the year low. Global turbulence within the financial markets and fears of a recession are seeing traders hunt down safe havens like the dollar and therefore the yen.
Levels to observe
EUR/USD is down over 1.5% at $1.10, it's picked up off session lows of US$1.0974. It trades below its 50, 100 and 200 sma and comfortably below the descending trendline.
Immediate support are often seen at $1.0974 (today’s low) before $1.0953 (low 28th Feb) and $1.0880 (low 26th Feb).
Resistance are often seen at $1.1026 (200 sma), $1.1118 (today’s high) and $1.1130 (100 sma). we might be trying to find a move above $1.1170 to negate on the present bearish trend on 4 hour chart.