Strong economic performance and the highest economic sentiment across the Euro Area for more than 16 years has not helped keep the Eurozone currency strong in recent weeks.
Strong economy doesn’t translate to a strong Euro
While the economic results for the Eurozone appear to be largely positive – beating forecasts and continuing to demonstrate growth – the pace of growth has slowed recently. Key economies for the Eurozone, France and Germany, continue to perform strongly. However, cost pressures continue to grow across key economic sectors, as energy prices increase and the cost of goods goes up.
The Euro appears to be vulnerable to economic shocks and global economic announcements in the current climate. Mario Draghi’s opening comments at the European Central Bank (ECB) Forum on Banking Supervision on 7th
November skimmed over monetary policy and focused on the European banking sector, disappointing markets and weakening the Euro. This was exacerbated by falling German Industrial Production figures for September 2017, pushing the Euro down against the US Dollar, in particular. Despite broadly impressive economic growth for the Eurozone, the Euro is still underperforming against the US Dollar and this is likely to continue for the short-term, although the situation is likely to improve in the coming months.
Sterling recovering slowly
Sterling is rebounding after a steep fall following the Bank of England’s (BoE) dovish November meeting. Despite interest rates going up, BoE Governor, Mark Carney, announced the bank’s forecast of only two small rate rises expected over the next three years, which sent Sterling into a temporary spiral. If the Pound picks up further, this could add additional pressure to the Euro, which appears to be facing pressure from a number of areas.
What next for the Euro?
Markets forecast a solid Euro for the medium term, however, but expect a slow pace of increasing currency strength.
Guidance for buyers
The 1.14-1.1450 region is now definitely a buy area. The currency pair has topped out around there on half a dozen occasions without ever really looking like breaking through what is now a considerable level of resistance. A break above and a weekly close above 1.1450 would suggest a quick move towards 1.1800.
Guidance for sellers
Although 1.1000 now looks unlikely to be tested any time soon, as the Relative Strength Indices (RSI) turn more neutral, 1.1450 looks like decent resistance; unless that is breached, it may be worth waiting to see if lower levels can be seen.
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