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The break lower in EUR/USD is now clearly in train and Euro bulls are no longer ignoring the fundamentals. Selling of this pair was encouraged during the day as the market was presented with uninspiring preliminary German inflation data combined with the first Q2 GDP growth reading out of the US, which easily topped expectations.
Tonight’s FOMC meeting is unlikely to contain any surprises. Although several regional Fed Presidents have been making comments recently which are clearly aimed at encouraging the Fed away from it’s ‘accommodative’ stance sooner rather than later. Only one of these individuals is in the voting rotation at the moment so status quo from the Fed is anticipated, however there is an outside risk that rhetoric causes a truncation of the monetary tightening expectations timeline, this would further encourage Dollar buying.
Euro Zone CPI data due tomorrow morning offers a potential risk event, as does the US Employment data on Friday. The trend in both of these events, if it holds, is favourable for the Dollar at the expense of the Euro.
There has been little in the way of support offered to the EUR/USD pair since it broke below the 1.3522 line. 1.3488 was a target for support but this was taken out easily. The current move is at least being slowed by some reasonably clear Fibonacci support, this has already been confirmed by pauses at the 61.80% line (1.3458) and the 50% line (1.3414) and the pair is currently resting on the 38.2% line (1.3373).
The implication here being that there is further support coming up at 1.3321, with a potential for a move on down to the 1.3238 level. Whatever the strength of the latter level, there is no real expectation that the former will offer enough strength to hold out for a pivot.
Thierry Laduguie is Trading Strategist at www.bettertrader.co.uk
