Article by ForexTime
EUR/USD currency pair moved back below 1.3200 after capping out at 1.3215. The weaker than expected IFO number released on Monday and the backdrop of a very dovish European Central Bank, should continue to generate headwinds for the Euro. The ECB’s Draghi acknowledgement at the weekend that the outlooks for growth and inflation have softened has rekindling speculation of broad based ECB asset purchases later in the year.
At the same time, the Ukraine situation, along with the impact of sanctions against Russia on the Eurozone economy have placed a negative cloud over the EU economy. Sentiment will likely remain weak, and force the ECB into flushing the market with liquidity. It is surprising that the Euro is holding up at these levels despite the backdrop of lower rates.
Deposit rates in the EU are negative and the 10-year bund is trading below 1%. The interest rate differential, which drives the forward curve, makes it expensive for investors to purchase the Euro over the greenback.
Spanish refinancing costs plummeted in bill auction on Tuesday. Spain sold EUR 2.39 billion of 9 months bills at an average yield of just 0.107%, sharply down from the 0.205% paid at the last auction on July 22. The bid to cover ratio was 2.29, down from 3.207 in July.
The currency pair gapped lower on Monday and is trading in a tight range for the second consecutive session. Momentum on the currency pair turned negative as the MACD (moving average convergence divergence) index generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.
Free Reports:
Momentum has also accelerated as reflected by the relative strength index (RSI). This momentum oscillator also shows overbought and oversold levels. The current print of 26, is well below the oversold trigger level of 30, and could foreshadow a potential correction.
ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com
