This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
EUR/USD is currently testing the significant support of $1.3750. Should this metric succumb to additional euro selling, it may well encourage the bears. One could expect to see a sharp pullback to $1.37 in the near future, with the $1.3640 level lurking beneath if momentum ramps up.
A shrinkage in lending to households and firms in the euro-bloc has helped the downside today. We will have another policy meeting from the European Central Bank next week, so given the amount of rhetoric emanating from both the Bundesbank and the ECB in reference to FX rates, one would expect the current moves are working in its favour.
Nonetheless, disinflation is still a concern and with subdued money-supply growth, we might see a less-hawkish Draghi now.
In truth, the current price action can be attributed to dollar strength rather than euro weakness. US gross domestic product grew at a 2.6% annualised rate from October through December, more than the 2.4% gain reported last month, helping to vindicate the recent decision to pare back the current quantitative easing programme.
US weekly unemployment claims came in lower than expected at 311,000, so now attention turns to pending home sales for America.
This is unlikely to elicit any wolf whistles or excitement, a mere 0.1% increase on the month is the consensus view as sales are likely to be dampened by cold weather conditions.
Any upside surprise here could see additional dollar strength and see the support barrier of $1.3750 tested with conviction.