Our outlook for euro enclosed our view of 3 pairs EUR/USD, EUR/JPY, and EUR/GBP in terms of the fundamentals, sentiment, and technicals.
In terms of EUR/USD, the Euro is now in a downtrend and while it’s oversold on the short-term bounces are selling opportunities. The inflationary and economic outlook points to better economic performance in the US and rate hikes coming as we can see on the charts below:
While the Fed will need to reduce stimulus in the months ahead and move to hike rates Euro zone cant reduce stimulus in the near future due to the uneven growth in the zone as the ECB needs to help the poorer nations with liquidity. The ECB balance sheet is already increasing faster than the Feds and a look at Itlay shows the central bank is buying all bonds! In conclusion, stimulus cannot be withdrawn because the poorer nations such as Italy cannot take higher borrowing costs.
EUR/USD Technical Analysis
On the chart below, the Euro is oversold but any rallies back to 1.200 level in our view are selling opportunities on weakness with a stop behind second level resistance or on a move through today’s low with a stop back behind 1.200. We are looking for a move-down chart lows and then on to weekly support at 1.1400.
EUR/JPY
The JPY is oversold and speculators have sold the JPY heavily and they hold a big long euro position in EUR/JPY which we think will get hit on stop. With the Fed becoming more hawkish about rate rises this will create risk aversion and the JPY is the number 1 save haven currency.
In terms of the technicals – We view the EUR as a sell back to 132.00 resistance on weakness, stop behind second level resistance or a sell on a break below 131.00 stop back from first level resistance.
EUR/GBP
This pair has been boring in recent weeks with very little volatility however the bigger picture points to the euro moving lower in our view: The UK economy is in better shape, the BoE will be reducing stimulus ahead of the ECB and finally, sterling remains oversold on an historical basis.
We are using a weekly chart below and we can see the 20 week moving average (green line) has held rallies for the whole of 2021. The 20 day MA is at 0.8620 and we would look for any rallies to fade into the level. We see the euro as a sell-on weakness into this level or on a break of the weekly low.
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