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Today’s Trading Edge: EUR/USD : Potential Recession + Concerns Deflation = 1.30 for Euro

Posted by Edward Moya on Aug 14, 2014 8:18:00 AM

WWM EURUSD AUG 14 2014

Eurozone GDP for the second quarter came in flat (q/q), while Germany contracted 0.2%.  The numbers show that no real improvement is occurring in Europe despite all the unconventional measures the ECB has implemented.  With German yields on the 10 year German Bund falling below 1.0%, market participants are definitely expecting the ECB to start with conventional quantitative easing measures that will keep European bond yields low in hopes of spurring economic growth and hopefully avoiding deflation. 

While the economic problems persist in the EZ, price has refused to make fresh monthly lows.  The bearish trend is very much valid, but short covering may support a move towards the 1.3450 area, with major resistance coming from the 50-day SMA a 1.3526.  If we do see fresh lows, the key 1.3250 level will provide the next major support level.  In the past, that figure was a key pivot level.  Eventually, when normal liquidity returns to the markets, we will anticipate a move towards 1.30.  Once QE is announced by the ECB, the euro may be vulnerable to a slide towards 1.2800.    

The trade: Sell EUR/USD at 1.3400 with a stop loss at 1.3455 and a take profit at 1.3250.  The Risk/Reward Ratio is around 1:3. 

Edward J. Moya

Technical Strategist

Topics: EURUSD, EURO, eurozone, German Politics, U.S. Monetary Policy, $EUR, EU, Germany, German economic statistics

 

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