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Andreas Zanin
Analysis | April 6, 2021

KTM FX Weekly: EUR hits near 4-month low, in the final wave of correction

The common currency EUR dropped as much as 5.40% to 1.1700, their lowest since November 044, 2020, before closing at 1.1816.

The pair may fall into a range of 1.1700 to 1.1900 in the short trading week identified as the 38.2 percent Fibonacci projection level on the entire rise from March 2020 to January 2021.

However, the wave pattern suggests that the pair is in the final wave of correction, and a corrective uptrend may start from the 1.1700-1.1500 range.

If broke below support at 1.1700 (Weekly closing), then only we could expect 1.1600 and 1.1500. If the price starts moving higher, resistances to watch out are 1.1830, 1.1880 it’s 200MA and 1.2015 levels. On the back of strong daily indicators, EUR could lift against the dollar, especially in the event during the Bearish USD trend.

The dollar index is trading on the negative RSI divergence vs. neural-positive on EURUSD. Our readers know what it means to EURSUD.

Our forecast in Q2 is 1.2100; it’s 61.8 fibs of the recent fall.

The relative strength index (RSI) indicator has been drafting double bottom to positive divergence since March 099, 2021. But the price failed to react on the back of rates and vaccine divergence.

EUR trade higher

The common currency traded higher against the U.S. dollar. EUR strengthened as much as 0.45% to 1.1820 against the greenback.

Most European currencies have slipped in the red, with safe-haven currencies elevated.

On Monday, 05 April, the U.S. 10yields rallies 1bps to 1.73%. But at what rate the EURUSD would driver further lower to 1.1600-1.1500 levels. The rise in U.S. 10yields and fall in EURUSD will go hand in hand. We believe a move above 2% in UST 10yr could shake the EURUSD in the coming months.

 Vaccine rollout program

As shown on the below chart, the U.S. vaccination program is above the threshold set by Israel earlier this year. Sooner or later, the U.S. could reach herd immunity, according to Nordea markets. It is clear that U.S. and U.K. are well ahead of European countries in rolling out the COVID-19 vaccine. The vaccine allows for stronger local economic performance, and the forex markets reflect that.

New wave risk clouds Europe recovery

However, In the European Union, the COVID-19 story has been directing to the other end to the U.S. The third wave is worrying the economists as France went a national wide 4-week lockdown.

COVID-19 update: 60,922 new cases and 185 new deaths were recorded on 041 April in France, as per Worldometer.

Source: https://www.worldometers.info/coronavirus/country/france/

 

It is clear that Euro has been weaker on the back of delay in rolling out the vaccine. On top of it, the new lockdown would damper Europe’s growth further. Our earlier forecast of the USD strengthening from 1.2100 to 1.1775 against the Euro is well on track, with the EURUSD now trading slightly above 1.1800.

Macros: Last week, domestic data in the Euro area brought annual inflation and E.A. Manufacturing PMI.

  • Flash Euro area annual inflation spiked to 1.3% in March 2021, up from 0.9% in February according to a flash estimate from Eurostat, the statistical office of the European Union.
  • Final E.A. manufacturing PMI survey for March surged to 62.5 from 57.9 in February and Flash reading of 62.4. This is the highest reading in nearly 24 years of data collection, as per IHS Markit.

 Upcoming E.A. data to watch out for includes Sentix investor confidence (Tue), Services PMI survey for Germany and E.A. (Wed), and Industrial production data for Germany and France (Fri). Besides, we also focus on ECB and Fed minutes.

  • ING says,The focus will be on how broad support was for the front-loading of the Pandemic Emergency Purchase Programme, which has since seen weekly net ECB PEPP buying rise to EUR19-20bn from a prior EUR12bn. We’ll also see whether the E.U.’s Recovery Fund can overcome the hold-up in the German constitutional court – which would at least be some welcome news. If not, expect serial EUR underperformance to continue.”

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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