While the fall of EUR/USD is certainly justified from both sides of the pair, we may be on our way for a 9th consecutive weekly decline, and this may be too much.
After stabilizing above last week’s lows of 1.2920 and below the resistance line of 1.2955, the pair slid once again, surrendering to fresh USD strength that was also felt in other pairs.
The dust left by Draghi’s measures (even more rate cuts and also the ABS announcement) did not really settle. A worse than expected NFP in the US provided only a temporary reprieve, and the seemingly stable ceasefire in Ukraine failed to lift the pair either.
A fall of the euro is much needed for the euro-zone: the weaker exchange rate lifts prices of imported goods, thus pushing inflation higher. This is not the “good inflation” that the continent needs, but it makes the ECB’s goal of 2% inflation more realistic.
More importantly, it makes European exports more attractive, and not one minute too late: recent figures have shown that the euro-zone economies stalled. Germany contracted in Q2 and Italy slipped into a recession.
With the ECB about to expand its balance sheet and the Federal Reserve about to stop expanding its own, the fall of EUR/USD is certainly justified.
The pair is still not in the 1.20-1.25 comfort zone, but it’s getting there rapidly.
Nevertheless, isn’t it too fast? Isn’t FX a two way street rather than a one way street?
There seems to be only one way at the moment, without any real bounce, not the “dead cat” type.
Here is the weekly chart that shows the fall, which doesn’t seem to slow down: