EUR Downside Beckons Despite German Coalition Deal
EUR price, news and analysis:
- The Euro has made little progress despite an immigration deal between German Chancellor Angela Merkel’s CDU and its Bavarian sister party the CSU.
- That suggests it could ease further, with trendline support for EURUSD in danger of breaking.
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EURUSD price at risk of losses
The Euro remains under downward pressure despite an agreement on immigration between German Chancellor Angela Merkel’s Christian Democratic Party (CDU) and its sister conservative party, Bavaria’s Christian Social Union (CSU). The deal means special transit zones at the German border with Austria, where migrants already registered in other EU countries will be held, and potentially sent back.
The problem for the CDU/CSU is that the third party in the ruling German coalition, the center-left Social Democratic Party (SPD), has yet to approve the agreement – and neither has the Austrian government. The bounce in EURUSD on the deal has therefore been modest and there is a risk that it could reverse downwards.
EURUSD Price Chart, Daily Timeframe (April 3 – July 3, 2018)
The agreement between the CDU and the CSU has saved the German government for now and avoided a split between the two. That has benefited the Euro but further progress seems unlikely until both the SPD and the Austrians have signaled their approval.
EURUSD at critical support
Meanwhile, from a technical viewpoint, EURUSD is now sitting on support from a rising trendline in place since June 28. However, it has already broken below the 20-day moving average and if the trendline breaks there is a risk of a drop to 1.1511, a level that has supported the pair since late May.
Sentiment data bearish too
As for retail trader sentiment data, the figures show 56.9% of traders are net-long, with the ratio of traders long to short at 1.32 to 1. In fact, traders have remained net-long since June 14, when EURUSD traded near 1.17988; the price has moved 1.4% lower since then. The number of traders net-long is 6.7% higher than yesterday and 2.6% higher from last week, while the number of traders net-short is 6.6% lower than yesterday and 10.6% lower from last week.
At Daily FX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bearish contrarian trading bias.
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--- Written by Martin Essex, Analyst and Editor
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.