Euro hit by double whammy of bearish news

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By :  ,  Financial Analyst

The euro has been hit the hardest among the major currencies today. It was dealt a double whammy of soft Eurozone data and surprisingly dovish European Central Bank meeting minutes. The single currency slumped initially after the publication of more disappointing data this morning. This time it was industrial production, which contracted by 0.8% in February rather than increase 0.1% as expected. This is the latest Eurozone data which points to evidence that growth in the region may be slowing down, crucially at a time when the ECB is considering to taper QE. But if the recent trend of soft data continues then the central bank may have to delay the normalisation process. The ECB was actually surprisingly dovish at its last policy meeting. According to the meeting minutes, released earlier today, the Governing Council seemed worried about the impact of the trade war, noting "widespread concern" about the potential impact of protectionism. Of the euro’s strength, the ECB said that it "may have a more negative impact on inflation”. And on inflation, the conclusion was that the evidence for a sustained rise in prices towards levels consistent with the Governing Council’s target was “still not sufficient.” In other words, the ECB appears more likely to maintain status quo longer than some had thought.

The euro’s breakdown was most noticeable against the British pound and the New Zealand dollar. These currencies have been among the strongest in recent trade. The EUR/NZD has in fact broken below its long-term bullish trend line at 1.6750/65. At the time of this writing, it was trading near its session low and appeared poised to drop towards its 200-day moving average at 1.6655 next. The 1.6750/65 level is now the key short-term resistance to watch. For as long as price holds below this level, the path of least resistance would remain to the downside. However, if and when price breaks above this level and goes on to break the next resistance at 1.6820, it would thus reclaim the broken bullish trend line and therefore the bearish idea would become invalidated.

Related tags: Forex

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