EURUSD falls to a five-week low on a combination of poor economic data and speculation that quantitative easing from the European Central Bank (ECB) is closing in. The US dollar saw increased demand after the German investor confidence fell for a fifth-consecutive month, which is added fuel to the fire.
“Interest-rate cuts are the most likely for the ECB, but we’re not convinced it’ll trigger a sustained downtrend for the euro,” according to Brian Daingerfield, FX strategist for the Royal Bank of Scotland Group’s Connecticut unit. Market participants are uncertain what “tools” the ECB will employ. Several central bank officials, including President Mario Draghi, have mentioned everything from negative deposit rates to all-out asset purchases.
Price action has been increasingly bearish since the bears had a little bull for dinner on the spike to 1.3992. There has been a lot of hype around 1.40 as the line in the sand for the ECB, but speculation of an impending monetary policy intervention has driven the euro-dollar through 1.3700.
Momentum to the downside is increasing, as the +/- DMI divergence increases and the ADX indicator picks up through 15. Price action has broken through support near 1.3755/60, and this level now represents resistance on a pullback. Look for consolidation before the pair attempts to reach support near 1.3670. Additional support will lie at 1.3615, nearing the 200 EMA. If the ECB does induce asset purchases, look for 1.3565.