Is the euro’s fall so dramatic?

The euro started falling since the last Friday, February 16 and of course, it happened not without reasons. There are some factors that are negatively affecting the fiber now. So let’s look at them and conclude how they can affect the EUR/USD pair in the future.

• First of all, the Euro is under the pressure because of a vote in Germany. Angela Merkel is waiting for the results of the potential coalition partner Social Democrats. Results of the vote will be announced only on March 4. If Angela Merkel is able to form a coalition, the euro will find a support, if not, so not.
• Another important event for the European Union and the euro will happen on March 4 as well – the Italian Parliamentary election. Coalition parties cannot agree on the issue whether Italy will be in the European Union or not. If opposition forms the majority in the government, it will shake the stability of the EU and the euro. So in accordance with results of the election, the euro will appreciate or fall.
• US dollar’s strengthening causes a further decrease of the euro. Today is the second day when the dollar index is rising after the crucial fall last week to the three-year lows. The increase of US Treasury yields helps the dollar to recover, too. So the more the US dollar strengthens its positions, the more the euro falls.
• Today manufacturing PMI and services PMI data put more pressure on the fiber and proved its decline. Both figures appeared less than previous ones and even less than forecasts. The PMI is a leading indicator of the economic growth, so traders highly take it into consideration. So the euro has continued to fall.

However, the picture is not so dramatic. Despite the fact that Eurozone business growth lost some points in February, it still remains strong and anticipated to return its positions soon. According to the report, the European economy is expanding at the fastest pace in eight years. It means that the economic growth is on a quite good level, that will give reasons to the ECB to raise interest rates.

Another fact that can make the future of the euro more positive is the whole picture of the currency movement. If we look at the daily chart, we will see that the position of the euro is not so bad. The pair is almost repeating movements of the end of January – beginning of February. So the EUR/USD pair is moving in the trading channel with a resistance at 1.2520 and a support at 1.2210. Also, we can see the main upward trend since the middle of December 2017.

To sum up, we can say that several factors contributing to the euro fall now. However, the fall of the euro is not crucial. The economic growth remains solid and gives chances for interest rate hike in the soon future. But before that, the ECB should do some actions to prevent the euro from the further fall. According to the forecast of UOB, pressure on the euro will increase if it fails to return above 1.2435 during the next few days. Scotiabank warns that a decline below 1.2207 may trigger a "double top" with a target at 1.19. Of course, political events will play a big role too.

Similar

03.09.2021 17:47 What will move the market on September 6-10?

Last Friday’s NFP was disappointing. The reaction of the markets was astonishing. Will it last longer? Let's find out the main trade opportunities for the upcoming week.

27.08.2021 18:01 USD Declines on Powell Remarks

After multiple hawkish remarks over the past few days from non-voters members, the Federal Reserve chairman Powell surprised the markets with some dovish remarks…

27.08.2021 10:41 S&P in the Сrosshairs

Institutional investors speak about further growth in the stock market. In the exact market that has doubled since COVID-19 and doesn’t plan to stop. Is it possible?

Latest news

20.05.2022 18:10 Last chance for bulls to exit the market. FBS explains the next two years for crypto

Crash of LUNA ecosystem and halving cycles. Glimpse into the future of the crypto market with FBS experts!

20.05.2022 17:59 What To Trade On May 23 - 27?

Last week blew traders' minds!  The US dollar dropped for the first time in seven weeks after Jerome Powell's speech on Tuesday…

20.05.2022 17:25 Can a recession be avoided? 

The pandemic continues hurting economic activity in China, the war in Ukraine is hitting the entire European economy, and the Fed's efforts to control inflation threaten to trigger a recession.