Alex Kazmarck of Trade Leader SpotEuro presents analysis of the EUR/USD.
The euro has traded lower during the past two weeks, falling below 1.37 on Friday. The economic schedule this week is light, which would normally lead to less volatile sessions, but with Eastern Ukraine making noise in the geo-political sphere, capturing and barricading in government buildings in protest of the new government, we could see some big moves if America and EU begin to discuss more economic sanctions on Russia. Given the large natural gas reserves and pricing control, Europe is reliant on a good relationship with Russia, so I think it will be unlikely that Europe will rush to support any major economic sanctions. The story that will drive the EUR/USD pair this week will most likely continue to be prospects of QE within the EU with inflation figures from France on Thursday and Germany on Friday. Also, I’m paying close attention to FOMC meeting minutes (Thursday), US PPI figures out on Friday, and G20 meetings Thursday and Friday.
The EUR/USD is entering dangerous territory. It hasn’t been able to break above 1.3900 with conviction and has traded back to the 1.3700 level, a very important support level. If the pair breaks below Friday’s low of 1.3673 it could very well continue dropping to the 1.3600 figure with 200 day MA providing good support near the 1.3550 zone. Resistance should come near the 50% retracement level of 1.3810, measuring from March pivot high to Friday’s low.
While I’ve been discussing the prospects for a euro short for some time now, we could see another bounce from 1.3700 and a test of 1.40+ if deflationary fears are eased with higher CPI and PPI figures. ECB VP Constancio said that inflationary figures will improve in April as Easter holiday travels should boost consumption. While there is a lack of confirmation in any direction, fundamentally the US is further ahead in the recovery process and inflationary outlook favors the US Dollar.