EURUSD Long Term Bearish Channel
Weekly Chart – EURUSD 13/05/2020 19:00pm

Essential Insights

  • EUR/USD is currently trading in a channel range.
  • Reduced bets on Euro advancement.
  • European Leaders are struggling to form unity.

Technical Analysis:

EUR/USD has been trading in a bearish descending channel since September 2018, prices are still respecting the structural integrity of this channel with the previous weekly candle rejecting from the upper trendline resistance of the descending channel.

From the image above, there is a dotted line between the channel. This line typically represents an intermediary zone, if prices break below the dotted line, there is a high chance of the lower trendline support being met, as evidence in previous price action. On the other hand, if prices successfully reject from the intermediary zone, there is a strong possibility of the upper trendline resistance of the descending channel being tested.

Price is currently testing this level; therefore, traders should keep a close eye on how the current weekly candle closes, leveraging the daily candle closures as momentum indicators.

Important Short Term Decision Point
3 Hour Chart – EURUSD 13/05/2020 19:00pm

On the 3-hour timeframe, prices are moving in an ascending channel. Current momentum suggests the lower trend line support of the channel will be met, from there prices can either rebound back and test the upper trendline resistance of the channel or break below and test the monthly support level at 1.07700.

Fundamentals:

The Euro has been the worst performing G-10 currency since mid-March.

G-10 Currency Strength
G-10 Currency Performance – 13/05/2020 19:00pm

A failure to rally together against the pandemic has contributed significantly to this Euro weakness, Europe’s inability to deploy a long-term fiscal stimulus to combat the economic impact from covid-19 has led to less optimistic views on a potential Euro rebound.

In contrast you have other governments such as the U.S and Japan that have unveiled trillions in stimulus packages. Analysts have questioned the medium – long term value of the Euro, Jonathan Pryor, head of corporate foreign exchange at Investec, further emphasises this by explaining how this question arose before covid 19 crisis and is now really being highlighted during this crisis.

Investors see increasing risks of euro-area break-up
Bloomberg Euro Break Up Index – 13/05/2020 19:00pm

Data from the Commodities Futures Trading Commission outlines asset managers reduced bets on Euro advancement, whilst leveraged funds have increased net short positions in the Euro. Bloomberg’s Sentix Euro Break-Up Index indicates the probability of a country leaving the euro in the next 12 months, this has soared to the highest level in three years.

Fiscal stimulus in the Euro zone has amounted to around 2% of gross domestic product, in comparison to 9% in the U.S. Evidently, the coordinated monetary and fiscal response by the U.S is superior to that of the Euro Zone. The U.S response is likely to encourage economic recovery at a much faster rate, supporting a stronger dollar versus the Euro, in comparison to the European governments whose responses are slow due to lack of political unity.

Moreover, even with the little action taken by the EU, there are critical issues. For example, the ECB’s latest Pandemic Emergency Purchase Programme (PEPP), was criticized by German judges. Certain aspects of this purchasing programme aren’t backed by EU treaties and need to be fixed. Highlighting the lack of a unified approach.

It is likely EUR/USD will remain under bearish pressure until the European Governments can agree on a long-term stimulus plan.