EUR/USD short-term weakness eyes fresh multi-month low

The EUR/USD sell-off accelerates and now looks to test lows seen late last year. A break lower brings April 2017 lows into play.

2020 has been a bad year for euro bulls with the single currency once again succumbing to selling pressure across the board. The eurozone’s traditional engine, Germany, is battling to keep its head above water with market expectations of just 0.50% growth this year, a touch lower than 2019’s feeble 0.6% GDP.

Euro outlook clouded, while US defies pessimists

Ongoing trade negotiations with the US and upcoming trade talks with the UK have clouded the single currency’s outlook, while any weakness in China will weigh heavily on the eurozone. The US, on the other hand, continues to defy the pessimists with annualized growth expected to print in the low 2%s.

Looking at the most traded forex pair, EUR/USD, the interest rate differential continues to favour the greenback. Looking at two-year government bond yields, the US offers investors 1.45%, while the euro proxy, the two-year German Schatz, is quoted with a negative 0.63% yield – you currently pay the German government 63 basis points for the privilege of lending it money.

EUR/USD approaches next levels of support

The EUR/USD daily chart highlights this year’s weakness with the next levels of support close. The 1.100 ‘big figure’ is unlikely to hold for long before a supportive zone between 1.0981 and 1.0989 comes into play. Below here, the double low in September 2019 at 1.0926 before the short to medium-term target at 1.0879.

The CCI indicator at the bottom of the chart suggest the market is oversold, and this may slow any further sell-off down, while the 20-day simple moving average (SMA) is now trading through the 50-day and 200-day SMA, underscoring the current weakness in the pair.

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