Wednesday, July 16, 2014

Single currency is now below resistance | Next up: Inflation figures for the Eurozone

Going back to September of 2013 the EURUSD pair has shown considerable respect for the 200 Day Exponential Moving Average (EMA), as can be seen on the daily chart above. While this indicator had been supportive of the pair, that situation has now changed. In May the rate broke through to the downside and since then the 200 day EMA has acted as a resistance to further rises, instead of support, which had protected it from a fall. This is highly characteristic of support and resistance levels. Once breached, support invariably becomes resistance, and vice versa.

The situation right now is that price is approaching the “swing low” support that has been established just above 1.3500. Should it break through this it will have established a new downward trend. The only question on market participants’ minds if that happens will be how long it might last.

Next up: Inflation figures for the Eurozone / Janet Yellen’s words support the US dollar

At 09:00 GMT (actually 10:00 in Dublin and London as these cities are currently on GMT+1 [boy is this confusing]) this morning inflation figures for the Eurozone will be released. As low or non-existent inflation is currently the big bugbear for the ECB, these figures will be closely watched. Falling inflation will put further pressure on the authorities to enact easing measures to combat this phenomenon. Such an outcome can be expected to be bearish for the Euro.

Separately, the chair of the US Federal Reserve, Janet Yellen, has finished speaking to the House Financial Services Committee of the US Congress. The big takeaway seems to be her confident tone regarding the state of the US economy. She is quoted as saying: “I am optimistic about the economy and that is reflected in the monetary policy report”. She also said “…I do think the economy is recovering and that growth is picking up and that we have sufficient growth to support continued improvement in the labour market”.

These comments, from the highest ranking and presumably best informed economist in the country, are supportive of the US dollar and therefore bearish for the EURUSD pair. They also signify, if such were needed, that employment growth figures are once again up front and centre as an indicator of how soon interest rates might start to rise in the USA.  

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