EUR/USD Halts After a Sharp Drop to 14-year Lows – Technical & Fundamental Analysis

The Euro has been subdued and not preferred by traders as risks in the Eurozone - including austerity policies, refugee crisis, Italian referendum, Brexit vote to leave the European Union - endorse financial and political instability. At the same time, the U.S. dollar rallied to the highest level in more than 13 years against the basket of currencies as Fed raise interest rates for the second time in the decade and Yellen described next year’s forecast for three rate hikes a “very modest adjustment”, versus the two rate hikes were forecasted before. This means that next year we could see and a tightening of more than 75bp. The U.S. inflation report showed that consumer prices picked up 1.7% yoy in November from 1.6% in October, the highest since October 2014, mainly boosted by high energy prices. Albeit, food prices keep falling. However, the headline inflation rate is steadily heading towards Fed’s 2% target. Next week the release of the U.S. GDP report will add information on the outlook for the U.S. economy.

EUR/USD - Technical Analysis
The single currency extended its losses over yesterday’s period and hit a fresh 14-year low at 1.0366 on the back of relentless U.S. dollar demand. The EUR/USD pair was establishing and trading within a consolidation area with the upper band the 1.1620 barrier and the lower band the 1.0505 support level in the medium-term timeframe, which stands since April. If this week ends below the latter level, then a bearish potential move may begin until the 1.0200 strong obstacle.

Going to the daily chart, the pair plummeted more than 1% over Thursday’s session and recorded the third negative day in a row. The pair reached our second scenario for a downward move if there was a penetration of the 1.0505 handle that we referred in a previous analysis here at 1.0460 (see technical analysis: EUR/USD Holds Ahead of Fed First Rate Hike in 2016). Technical indicators edged sharply lower into the negative territory. The Relative Strength Index (RSI) despite that is moving in a bearish area, is pointing upwards while the MACD oscillator lies below its trigger and zero line. Also, MACD crossed its trigger line to the downside endorsing the downward move in price. On the other hand, a correction to the upside is possible as the pair is declining for a long time. If there is a break above the 1.0505 resistance level, then the price may expose towards the 1.0700 psychological barrier.


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