The EUR/USD currency pair witnessed a sharp fall over the last week, closing around 1.1496 on Friday, which is the lowest rate since September. Settling only marginally above this floor, it sits on shaky ground with the proximity of the November monthly low 1.1468 looming large. Even with the downward pressure, the pair is still in stout territory. Notably, it remains comfortably above the 200-day Simple Moving Average (SMA), which is still firmly tracking upwards at 1.1401. Further complicating the outlook as the pair loses upward momentum, analysts and market insiders warn of a potentially bearish outlook for EUR/USD.
At the time of writing, the duo exchange palms just over 1.1510, showing a sensitive equilibrium. Further, the 20-day SMA is pointing to the downside. For now, it trades under the 100-day SMA at 1.1566, the 200-day is at 1.1651. That technical positioning combined with a lack of positive fundamental drivers means any positive move will be met with heavy resistance. As things stand, the weekly chart indicates an increasing possibility of additional downside ahead. The 20-week Simple Moving Average under 1.1650 has edged a bit lower.
Technical Indicators Point to Potential Decline
Given its most recent performance, the current trajectory of the EUR/USD pair is worrisome. Should the price manage to close below the key support at 1.1470, it may open the door to a bigger downside move. Stay tuned for this exciting development in the coming weeks! Momentum indicator is just under its midline which shows weak directional strength.
If you’re looking to sharpen your advocacy skills, look no further. As it stands, the Relative Strength Index (RSI) for EUR/USD is at 38.61 demonstrating a growing bearish cue amongst traders. Moreover, the long-term momentum indicator is once again just barely flat and below its midline. Analysts are interpreting this as an indication of poor bullish momentum, further reinforcing the notion that a bearish trend is developing for the currency pair.
“Germany’s private sector saw a loss of momentum in November, with companies recording slower increases in both business activity and new orders.” – Hamburg Commercial Bank (HBOC) publication citing a survey.
No wonder Germany’s private sector is having trouble getting up to speed. This slowdown may have greater implications for the eurozone economy in general and the EUR/USD rate specifically. The upcoming economic data releases and central bank decisions will play a crucial role in shaping market sentiment and direction.
Central Bank Policies Under Scrutiny
The path forward for the EUR/USD currency pair relies largely on upcoming monetary policy decisions from the ECB and U.S. Fed. These decisions are pivotal in determining how the currency pair will move. The ECB is almost certainly going to promise to stay on hold at its December meeting. Doubt over the state of the U.S. economy has some speculating on whether the Fed will stay the course with its monetary loosening policy and cut rates further.
Traders are keeping a close eye on all three of these factors. As such, for any recovery in EUR/USD to mark a bottoming out away from the prevailing bearish trend, it needs to clear the 20-week SMA at approximately 1.1650. Until then, the market remains cautious, with many participants closely monitoring economic indicators and central bank communications for clues about future direction.
The economic outlook for Europe does not seem very bright, as illustrated by breaking data. Currency analysts definitely are keeping their eyes peeled for anything that would change the course of monetary policy and by the extension affect currency values.
Market Sentiment and Future Expectations
Market sentiment surrounding the EUR/USD pair has begun to shift as traders digest recent economic data and central bank signals. The ongoing weakness in Germany’s private sector may contribute to a broader sense of unease about the eurozone’s economic stability.
The present trading landscape is indicative of an increased level of market nervousness. More generally, doubts justifiably abound regarding the trajectory of monetary policy and prospects for sustained economic growth. This would likely change the mood towards additional euro bearishness for the EUR/USD currency pair.