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EUR/USD Downward Spiral

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The EUR/USD continues its downward spiral


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The EUR/USD is continuing its downward decline this week and is expected to test the 1.2755 key support level. A clean break of the 1.2755 level will then see a downward price movement towards the 1.2042 level. We are looking at a break of the 1.2994 resistance level to see any signs of reversal in trend. On a bigger picture, prices are entering a state of consolidation with monthly highs at 1.60390 and monthly lows at 1.20420. We can see that support and resistance levels are entering into a state of convergence. The price is breaking down from middle of the support and resistance level and is expected to go below 1.26415. On the H4 chart , the 20 SMA acts a resistance level and is holding resistance around 1.2880. Momentum slightly reversed when prices fell into oversold territory. A follow through of retracement may cause prices to retest resistance at 1.2920.

Looking at fundamental data, existing home sales data was less positive than expected but this did not help the EUR/USD much. The price is still at a yearly of 1.2816 and is in a state of consolidation with no signs of reversal yet. The speech by Mario Draghi, President of the European Central Bank released on 22nd September 2014 commented on the declining EUR/USD. The ECB touched up on the state of “persistently weak inflation outlook, a slowing growth momentum and subdued monetary and credit dynamics”. The ECB has decided to tackle the declining momentum of the Euro due to its concerns about the stability of the currency. Draghi announced that the ECB was to lower interest rates by 10 basis points to their effective lower bound while maintaining refinancing and deposit facility rates. In addition to these operations, the ECB also commented on the targeted long-term refinancing operations (TLRO) whose allotment was just conducted a few days ago. One key positive is the noticeable improvement in market sentiment as a result of the TLRO. In summary, the ECB is actively employing conventional and unconventional means of intervention to improve the state of the EURO. It remarked that monetary policy alone is insufficient to reverse the situation; there needs to be meaningful structural reform such as increased investment and job creation to reverse the situation. Over the last 24 hours, the EUR/USD reached new lows around 1.2825 and has regained some health. However, prices are consolidating and without sound fundamental data on price reversals, it is unlikely that the long-term bearish trend will reverse.

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