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ECB’s plans hit euro
The euro has been hit hard by the ECB’s plans to front load its buying scheme in May and June, and this accelerated the decline in EUR/USD. The decision was taken to ramp up the bond buying in the near-term as the markets lock volumes in July and August, and an added benefit would be a jolt to eurozone growth, which is yet to fully seeing the impact of the QE programme.
To make matters worse for EUR/USD, German ZEW came in at 41.9 - well below the expectation of 49 - and it is a massive drop from April’s reading of 53.3. The surprisingly large fall in German economic sentiment highlights how fragile institutional investors feel about the German economy, even though QE was revealed at the beginning of the year.
The $1.12 level was previously acting as support and now it is a point of resistance. If the level holds the support in the $1.1130 region will be the initial downside target, and then $1.11 will be in sight. On an hourly basis EUR/USD is oversold and we might see a move back above $1.12, and if that level is cleared $1.1280 will be the next target.