Pressure mounts on the euro

The euro seems to be at breaking point at the moment. And yesterday’s Bundesbank monthly report didn’t make things any better.

Euro
Source: Bloomberg

The Bundesbank suggested the economic outlook for Germany has clouded in response to unfavourable international news, pointing firmly to the geopolitical stage as a big source of concern.

The US dollar is also gaining momentum as we head towards some key releases today, kicking off with building permits, housing starts and CPI data. The US July CPI is expected to show 0.1% month-on-month and 2% year-on-year growth. Some analysts actually feel we’ll continue to see CPI track above the 2% mark, which would be bullish for the USD given that the Fed recently said downside risk to inflation is significantly reduced.

The FOMC meeting minutes and Jackson Hole Symposium will then be taking centre stage from mid-week. Any indications that the Fed is becoming ‘more aligned’ in its views on the economy could benefit the greenback.

Key support likely to be tested

All up, the net effect would be further EUR/USD downside. A key near-term trigger would be a retest of the 1.3334 level, which is where the lows from early August lie. An active downtrend resistance in place since May could continue to cap any recovery, whereas a break above the 1.3334 support could open a trade down to 1.3200. The pair is not in oversold territory, implying room for further near-term selling.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. 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. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.