Is EUR/USD Ready To Drop?

Since the stock market dropped heavily last week, the EUR/USD has been relatively stable though it did drop a couple of percentage points with the market bidding for the greenback. I think this is important price behavior and is a little taste for what is to come if stocks sold off again in a risk-off atmosphere.

Importantly, despite the Euro economy being relatively stable, it is the US dollar that remains the go-to safe-haven asset. One may argue that the US dollar appreciated for other reasons; such that the fed is making it clearer that it is gearing up to tighten monetary policy faster than estimated or that the US economy is revving up, creating increased demand for local currency.

However, this is unlikely the case because the financial market’s recent dominant driver has clearly been risk. In any case, it will be Wednesday’s US inflation and retail numbers that really ignite the market if they are above or below expectations in any meaningful way. Any accelerating wage inflation will send the USD flying and we’ll then witness a real EUR/USD retracement of a rally going back to December 2016 as further rate rises are incorporated into the economic discussion. I think the market will sit tight until this data release and will continue to consolidate until then. The only market event that could potentially sink the EUR/USD further is if stocks fall further into correction territory.

Looking at the EUR/USD chart indicates that the pair is likely to drop to the red support line at some point, whether it drops below this in any meaningful way is the real question. The RSI indicator line is now back in the channel and the MACD signal line crossover that occurred recently seems to indicate further downwards momentum is on the cards. So, for the moment, if you are looking to short the EUR/USD I would recommend holding fire just a little longer until we have a clearer picture and if you’re long, it’s an appropriate time to insert your take profit stops.


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