EUR/USD trading below $1.38

Trading below the $1.38 metric tends to indicate that the EUR/USD pair just hasn’t the legs to break back towards $1.40 in the near term.

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.

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