Eurozone Economy Too Weak for Euro to Pose a Sustained Threat to the US Dollar; So, EUR/USD Pair has a Negative Bias to the Downside
(By Glenford S. Robinson)
By looking at the 4-hour chart and the daily chart, the EUR/USD currency pair has taken a turn to the upside. The pair had rebounded from 1.1211 a hair below our hypothesized bullish entry point of 1.1215. The pair had a 2.5% probability of falling lower than our hypothesized support area. However, we deduced that for something like that to happen, there would have had to be some kind of dovish catalytic speech/sentiment uttered by the European central bank president Draghi or similar dovish news.
Therefore, we suspected that sooner or later the pair would attempt to claw back to its hypothesized moving average of 1.1506, but before that happened, the EUR/USD pair would’ve had to elevate toward our 1.1215 mark, which it did. Now, we are convinced that it will continue in the short term toward our next hypothesized target of 1.1361 before it finally gets back to its moving average sweet spot of 1.1506.
There is a strong possibility that the pair could surpass its hypothesized moving average of 1.1506 and continue toward our next target of 1.1652 and possibly 1.1798, but this is as far as the pair will go up the charts because fundamentally, the Euro zone economy is weak, and the Eurozone’s economic cycle is nearing its peak. In fact, the EU economy is already acting as if it has commenced its recession cycle.
The EU economy has begun to slow down again after recovering from its recent great recession, and now this post-great recession recovery has begun to slowdown. So, at the moment, the Eurozone economy is not too far from a possible extended recession. With 0.7% GDP reduction in the 4th quarter of 2017 to 0.4% in the first quarter of 2018, it is evident that the Eurozone’s economy is crawling to a screeching halt.
Take a look at the EU GDP growth rate chart and the US GDP growth rate chart; it is evident that there are large disparities between the two charts, which is directly proportional to the performances of both country’s currencies. The US GDP growth rate rose by 0.2% while the EU GDP growth rate declined by 0.3% for the same 4th quarter of 2017 to 1st quarter of 2018 period.
The Eurozone interest rate is still stuck at 0% giving bond investors no incentive to invest in the Eurozone economy. These investors are instead siphoning their money into the US economy. Therefore, on that basis alone, we can expect the Eurozone Currency the Euro to have a difficult time gaining traction or accumulating and holding any kind of substantial value anywhere close to early 2017 values (EU GDP Growth Rate of 0.8%, Jan 2017). So, with that said, traders must be on the lookout for the EUR/USD pair losing value at a moment’s notice. This means that if traders are long on the EUR/USD pair, they should be on the lookout for vicious pullbacks on the slightest glimmer of any news catalysts about the Eurozone. In other words, the EUR/USD currency pair is negatively biased which means that the pair will go down faster than it goes up in value or price, especially on Eurozone-sensitive news releases.
Happy Trading! Best of Luck!
Disclosure: I/We/Mstardom Finance Traders do not own positions in the EUR/USD currency pair.
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I am a Clinical Lab Scientist, entrepreneur, investor and trader (stocks and Forex). I enjoy writing and publishing articles online.