EUR/USD Tumbles Into Multi-Month Support After German ZEW Data Disappoints
EUR/USD Price, Chart, and Analysis
- German ZEW warns of ‘increasing risks for the German economy’.
- EUR/USD nears multi-month support.
- Weekly retail trade data shows EUR/USD longs increasing, shorts decreasing.
Today’s ZEW economic expectations for Germany fell sharply from 63.3 to 40.4 with a warning of increasing risks for the economy from a ‘possible fourth Covid wave from autumn or a slowdown in growth from China’. This was the third fall in a row and is the lowest level since November 2020. The Euro Zone economic sentiment index also fell sharply from 61.2 to 40.4 in August.
Today’s data continued to heap the pressure on EUR/USD which has been steadily falling over the last two weeks. The pair briefly traded above 1.1900 at the end of July before turning lower again and trading at lows last seen in late March. The recent sell-off has been fueled by the turnaround in the US dollar, and the weakness in the Euro, as traders continue to price in the winding down of the US bond-buying program. Recent commentary from Fed members Bostic and Rosengren has added to market expectations that tapering may be announced sooner than previously thought, as evidenced by a rise in US bond yields over the past few days. With the Euro Zone economy still suffering from a rise in Covid cases, and fears that these numbers may rise further, there is little reason to see EUR/USD pushing appreciably higher from here.
The next level of EUR/USD support is either side of 1.1700 with the March low at 1.1704 and the 38.2% Fibonacci Retracement at just under the figure. Below here, the 1.1600 area comes into play off a double low made in late September and early November 2020. The pair have also broken convincingly below the 20-day simple moving average adding to the negative sentiment in the market.
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EUR/USD Daily Price Chart (August 2020 – August 10, 2021)
Retail trader data show 65.65% of traders are net-long with the ratio of traders long to short at 1.91 to 1. The number of traders net-long is 9.86% higher than yesterday and 26.92% higher from last week, while the number of traders net-short is 7.85% higher than yesterday and 21.08% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias.
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